What’s Happening to the Bitcoin Price?

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Bitcoin dropped below $50,000 in a sharp selloff this weekend. Why is this happening? And how can you make the most of this moment?

📉 Sunday Selloff in Global Markets

The fall in Bitcoin’s price wasn’t due to any Bitcoin-specific news. 

✅ The network is still operating as normal.

✅ No announcements came in from any big market players or governments.

So why did the price drop by 10-20%?

Because it started following the price of other assets that have been selling off.

For example:

  • Japan’s stock market had its worst day since 1987, falling 12.7%.
  • Many stocks and other “risk assets” dropped by over 10%.
  • Shares of Apple fell by 8% on the news of Warren Buffett selling nearly half of his stake in the company. 

Let’s dive into what is causing assets to crash.

⤵️ A Good Start to the Year, Now Turning Into Fear

The first six months of 2024 went smoothly for global financial markets: The S&P 500 rose by over 15%, CPI inflation in the U.S. stabilized to 3%, and geopolitical turmoil was relatively limited. 

These factors, along with a stable U.S. economy and hype around the A.I. theme helped fuel financial markets higher. 

As of July, these factors started changing. In the past weeks we have seen:

  • Signs of a recession. Markets expect the Federal Reserve to step in more aggressively.
  • Hype around A.I. stocks fading. NVIDIA dropped 34% from its peak in June.
  • U.S. unemployment reached a higher-than-expected 4.3%.

Now in August, the situation has further escalated:

  • There are concerns about further conflict in the Middle East. This makes a lot of investors move their portfolios around.
  • The Bank of Japan had to change its policy on interest rates to save its economy, which has major implications as we get into below.

🇯🇵 The End of Japan’s ‘Carry Trade’

For decades, it has been possible to borrow the Japanese yen at almost no cost.

If borrowing a currency is very cheap, then investors borrow far more than they should. They’ll then invest anywhere they can get returns. As a result, the yen has been used all over the world as a “funding currency”. This dynamic is called a “carry trade”.

But do you notice the little bump up at the end of the graph? Suddenly there are costs involved in borrowing again. Even if the costs are low, it still adds up to a lot of money if you invested large amounts. Many of these investors now need to sell assets to cover the cost, and with all of them selling at once, it is causing a cascade effect across global markets.

The carry trade is not just a Japanese phenomenon. In the U.S. we similarly had zero-interest rate policies (ZIRP) from 2009 to 2016, and again from 2020 to 2022. These also caused a variety of market crashes.

🟠 So What Now With Bitcoin?

The price drop may come as a big shock to some, but during volatile times, investors typically flee to cash and (are forced to) sell assets to reduce risk and leverage. Markets become more closely correlated during these crises.

On a Sunday evening when most financial markets were closed, bitcoin stood as one of the few sources of liquidity available for traders to raise cash. While Bitcoin’s 24/7/365 availability is seen as a positive attribute, it also means that it is one of the first assets to be sold during weekend market turmoil.

It’s important to remember that this selloff didn’t start with Bitcoin, and does not invalidate Bitcoin as a hedge against inflation. This event was not about inflation, but about leverage in the system.

We have seen these events play out several times before:

  • In March 2020, bitcoin fell by over 40% in a single day among turmoil in global markets. It went on to rise by over 150% in the months that followed.
  • Bitcoin was one of the first assets to respond to expectations of rate hikes in December 2021, falling by over 20% in a month.

It will take time for markets to reposition themselves. Bitcoin is likely to trade in line with other asset classes such as stocks and foreign currencies. But, our clients don’t seem too concerned.

🌊 River Clients Are Taking Advantage

Many of you have been stacking cheap bitcoin:

  • In the past 24 hours 80% of our volume has been from clients purchasing bitcoin.
  • The number of Target Price Orders executed on the platform in the last week was 300% higher than our three-month average. It’s a great feature to buy the dip with.

Why so much buy action?

Because nothing has changed about Bitcoin’s long-term outlook. 

It is still a limited supply asset in a world driven by the money printer. As time progresses, more people will keep discovering this. We recently created a new video to help answer the question: Why does Bitcoin have value?

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