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Important points
Bitcoin and cryptocurrency prices fell sharply on Monday as market turmoil triggered by concerns about the U.S. economy spread beyond stocks.
Cryptocurrency markets could face volatility due to ongoing economic uncertainty, but some analysts believe the decline could be limited for Bitcoin, which gained ground on Tuesday.
Some experts say the recent decline could be a buying opportunity, noting that the underlying value proposition of the cryptocurrency has not changed.
The dramatic sell-off in cryptocurrencies, which fell along with stocks on Monday on concerns about a slowdown in the U.S. economy, has not only unsettled investors but also tested whether Bitcoin is a safe-haven investment.
Here’s what experts say has happened over the past few days and what’s in store for cryptocurrency markets as the U.S. grapples with fears of economic uncertainty.
What Happened Amid the Crypto Selling Wave?
Bitcoin (BTCUSD) is not as immune to traditional market price volatility as once thought, calling into question its proposition as digital gold.
As the turmoil in stocks spilled over into crypto markets, bitcoin fell more than 18% on Monday to fall below $50,000, a level not seen since February. Bitcoin recovered to around $56,000 on Tuesday, but is still down about 20% since the beginning of last week.
The rest of the crypto market fared even worse on Monday, with alternative crypto assets still tending to follow Bitcoin’s lead rather than moving on their own.
However, according to data blockchain intelligence firm Arkham Intelligence, ether’s (ETHUSD) nearly 26% drop to $2,116 could be attributed to investors concerned about the large movement of funds from trading firm Jump Trading to various crypto exchanges that began on July 25.
Where Is Crypto Headed Next? Maybe Towards Volatility
There may be more volatility in crypto assets in the short term.
Bitwise’s Chief Investment Officer Matt Hougan suggests paying attention to a few signs that could indicate where crypto markets are headed: leveraged investors’ forced liquidations of cryptocurrencies due to price declines, the financial health of crypto companies, and flows into crypto spot exchange-traded products.
Grayscale Research President Zach Pandl said that if there is a recession in the US, Bitcoin will decline, although not as much as in the past.
“In our view, downside risks to token prices are lower than in the previous cycle due to relatively low altcoin valuations, limited credit/leverage in crypto markets, and institutional demand for spot #Bitcoin and #Ethereum ETPs,” Pandl wrote in a post on X.
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Bernstein analysts are more optimistic. “If rate cuts and monetary liquidity are the usual template response to U.S. recession fears, we expect a repricing of ‘hard assets’ like bitcoin (digital gold),” they wrote, according to The Block.
Is It Time to Wait?
Hougan recommends investors ignore short-term price cues and focus on the long-term fundamentals of Bitcoin investment.
He compared the recent volatility in both stock and crypto markets to the sharp decline seen on March 12, 2020, when the world realized COVID-19 was going to be a serious problem. After falling 37% that day, bitcoin went on a tremendous bull run, gaining more than 1,000% in the following 12 months.
“In hindsight, March 12, 2020 was not a time to panic,” Hougan wrote in a recent note. “It was the best buying opportunity for Bitcoin in a decade.”
Read the original article on Investopedia.