Making sense of market moves
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We all know digital assets are synonymous with volatility. And if you didn’t know that before, you do now after bitcoin’s wild performance over the past few months.
Bitcoin has risen 92% in 2024 thanks to the launch of a group of novel spot bitcoin ETFs, which added billions to the asset class and gave financial advisors, as well as institutional investors, a safe and easy way into bitcoin.
“Zooming out, it’s been a tremendous year for bitcoin,” said Ryan Rasmussen, senior crypto research analyst at Bitwise Asset Management in a conversation with Brew Markets. “The bitcoin ETF launches were the most successful launches of all time, they've raised around $14 billion in new assets since they've launched, and currently sit around $50 billion in AUM,” he added.
Volatility everywhere all at once
But bitcoin’s recent reversal has been swift and brutal. The cryptocurrency has plummeted 16% over the past three months, while ethereum has followed suit, falling 13% during the same time period.
“What’s happening is that bitcoin, and to some extent ethereum, are struggling from an overhang of legacy supply coming from a variety of sources,” explained managing director of research at Grayscale Investments Zach Pandl in a conversation with Brew Markets.
One driver of the price correction is the distribution of assets from Mt. Gox, a defunct cryptocurrency exchange that was hacked a decade ago. As billions of bitcoin are returned to investors, the flood of assets into the crypto market creates a “short-term supply/demand imbalance,” according to Pandl. Another unexpected driver of the selloff is the German government’s recent decision to sell up to $900 million worth of bitcoin.
Should you buy bitcoin?
If you're a crypto bull, Pandl says that now is an opportunity to dive in if you didn’t want to buy at a recent all-time peak. He added that bitcoin’s volatility is no worse than some in the Magnificent Seven, arguing that right now bitcoin’s volatility is “comparable to mega cap tech stocks.”
“This technical drawdown may be an opportunity for investors to get involved and create an attractive entrypoint,” Pandl said. “Price action could remain choppy over the short term, but I’m an optimist, I would stick with an optimistic outlook for the asset class,” he added.
It’s important to keep in mind that huge price swings are now the norm, not an outlier for crypto, so ride the rollercoaster at your own risk.—LB