Bitcoin Is Behaving Like A Risk Asset But Here’s Why It’s Still a ‘Buy the Dip’ Opportunity


Late on Tuesday, the cryptocurrency market continued to fall as low as early August levels in tandem with the global riskier assets.

Unlike gold which recorded positive returns, though it was only 0.5% since the Friday close, it is still behaving like a safe haven asset. Meanwhile, Bitcoin is behaving “like a risk asset in the short run,” as it dropped over 17% this week in a largely spot-driven sell-off, noted Arcane research.

“While bitcoin currently behaves like a risk asset, the market is a device for transferring money from the impatient to the patient.”

With this latest drop, Bitcoin slid down to $39,500, Ether went to about $2,650, and the total crypto market cap nearly touched $1.85 trillion.

The funding rate remains negative across the board, with the highest on Binance and Huobi at 0.01%, which is positive for the market.

But since then, the market has recovered to $1.97 trillion, with BTC hovering around $42,000 and ETH just below $2,900.

The price action “demonstrates that Bitcoin isn’t immune to the selloff in risk-on assets across traditional markets,” said Antoni Trenchev, co-founder of crypto lender Nexo.

“Bitcoin needs to retake the 200-day moving average at $46,000 and consolidate before a collective sigh can be released.”

In a matter of weeks, this price action has the market sentiment going from “extreme greed” to “extreme fear.” The Crypto Fear and Greed Index has a reading of 21, down from 27 yesterday and from 49 last week, while just last month, it was 79.

However, much like the stock market, the crypto market is experiencing seasonality, with September historically a down month. The fourth quarter could be expected to bring in the bulls back.

With Bitcoin’s latest drop amidst the global financial market turmoil, it is behaving like a risk asset, but even then, many are seeing it as a buy the dip opportunity.

“I think this is yet another buying opportunity,” tweeted SpartanBlack, partner at crypto fund The Spartan Group, as he explained that market concerns are “overblown and are mostly transient factors.”

Starting with Evergrande's situation, the Chinese property giant is currently at the brink of default with its liabilities sitting at $300 billion, but “the central government will not allow this to play out in the public domain without having a plan in place,” he said.

The fears are already scaling back as China’s central bank injects liquidity into the financial system, which has eased investors’ concerns as seen in the recovering markets globally.

Combined with Evergrade’s situation and weakened inflation in August is why the Federal Reserve most likely won’t take a hawkish stance either.

“Accommodative monetary and fiscal policies and macro recovery are still suggesting a buy-the-dip strategy,” said Angelo Meda, head of equities at Banor SIM in Milan.

As for the SEC’s warnings about crypto and DeFi, Spartan believes regulations are good for the sector. They will remove uncertainties and allow institutional capital to participate more freely.

“Bottomline: this storm too shall pass and pass quickly,” said Spartan noting, none of these risks/events look like ones that could derail the market, at least, not yet, not to mention “there is still a ton of capital on the sidelines and more coming into the asset class every day.”

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