Bitcoin has recently suffered its worst single-day drop since the FTX collapse. The crypto is currently hovering around $64,000, recovering some of its earlier losses. However, investors are questioning whether they should be buying in or if they should be wary of what is happening. Owen La, Oppenheimer’s Executive Director and Senior Analyst, shares his perspective on this dip.
Reasons for Correction
Bitcoin has gone up 150% in the past year and 50% year to date, which has contributed to this significant dip. Additionally, the strength of the recent Bitcoin rise is tied to the recent net inflows into spot Bitcoin ETF. However, investors are seeing outflows from this product, causing further drops. The inflation data being hotter than expected is another contributing factor to the dip, which may affect the number of cuts the FED makes.
Possible Downside Risk
There is a possibility of a drop below $60,000, but this data’s dependence could determine the severity of the drop. The bigger outflows from the product are increasing, and the FED decision on whether or not to cut two rates could make Bitcoin’s fall worse.
Prepare for Volatility
Bitcoin has been one of the most volatile assets since its inception. Investors need to understand this before investing in cryptocurrency. Owen likens Bitcoin to high beta technology, claiming new investors should expect volatility and prepare for it.
Long-term Optimism
Long-term adoption of spot Bitcoin ETF and Bitcoin being a global phenomenon inspire optimism for the future of Bitcoin. Asset managers can list this product overseas, and the product is homogeneous, readily available worldwide. If the FED decides to cut rates, this could support Bitcoin’s price in the longer term.
Crypto Use-Cases
Coinbase CEO, Brian Armstrong’s recent blog post titled, “What is crypto good for anyway” lists some of the industry’s examples of crypto use-cases. These use-cases include digitizing the dollar, fast, cheap global payments, and decentralized social media. Owen identifies tokenization and global money transfer as two of the most significant use-cases for digital assets.
Private Market Companies
Coinbase is currently the largest player in the crypto space, but longer-term, more private companies are looking to change this. Owen predicts more private companies going public in the near future, pointing to tokenization disrupting the whole payment space and remittance space. However, he mentions holding back on divulging which company he has his eye on at the moment.
Hot Take
Bitcoin’s drop has caused concern among investors. However, Owen’s long-term optimism for Bitcoin’s adoption and the potential for global money transfer and tokenization use-cases could help ease investor nerves. Investors need to be aware of Bitcoin’s historical volatility and be prepared for similar future dips.
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