Bitcoin experienced a 13% drop over the weekend as global equity markets reacted to U.S. recession fears and dislocation in the Yen markets.
According to Bernstein analysts, "Bitcoin’s initial reaction as a ‘risk off’ asset is not surprising."
They note that this pattern has been observed before, such as during the March 2020 flash crash, especially since Bitcoin is the only market trading over the weekend.
Despite the recent downturn, Bernstein remains optimistic about Bitcoin’s future. They argue that if rate cuts and monetary liquidity become the typical response to U.S. recession fears, "we expect ‘hard assets’ such as Bitcoin (Digital Gold) to reprice up."
They add that unlike previous cycles when investing in Bitcoin was more challenging through crypto exchanges, Bitcoin ETFs are now live and highly liquid, trading approximately $2 billion a day.
Bernstein also highlights Bitcoin's association with political dynamics, referring to it as a "Trump trade" due to the crypto market favoring Trump as a crypto-friendly candidate.
"Bitcoin remains a ‘Trump trade’, in view of crypto market favouring Trump as the crypto-friendly candidate," they write. "It’s not surprising that as the Polymarket odds between Trump and Harris narrowed, Bitcoin and crypto have traded weak."
They expect Bitcoin and crypto markets to remain range-bound until the U.S. elections, influenced by catalysts like the Presidential debate and the final election outcome.
Bernstein also notes that Ethereum ETFs have seen significant inflows, almost $1.2 billion in two weeks, though outflows from Grayscale’s ETHE have offset these gains.
Overall, Bernstein believes the Bitcoin and crypto markets will likely trade based on macro and election cues for most of Q3 2024. They suggest that investors seeking exposure to a "Trump trade" can consider adding Bitcoin or Bitcoin equities.
If broader equity markets recover due to a Fed response, Bernstein expects Bitcoin and crypto markets to follow suit.