While social-media commentators chatter about the unthinkable multi-day decline of NVIDIA (NASDAQ:NVDA) stock, there’s also been a pullback in another risk-on asset: bitcoin (BTC-USD).
But is bitcoin going down? With this digital asset dropping down to $59,000 on Monday afternoon, it feels as if a “great reckoning” may be afoot.
Maybe “great rotation” would be a more apt phrase though, since the Dow Jones Industrial Average (DJIA) closed firmly in the green on Monday. It’s worth considering whether this is a good time for investors to cash in their cryptocurrency for safe-haven assets.
As always, a calm demeanor will serve investors better than a knee-jerk reaction. However, it’s getting harder to avoid knee-jerk reactions during an election year in which crypto somehow became a political topic and bitcoin became more divisive than it already was.
The futile search for reasons
It’s natural to ask why an asset made a sharp move to the downside. In the world of stocks, there are often identifiable negative catalysts, such as disappointing earnings reports or sudden CEO departures.
However, with bitcoin, there are no earnings reports to disappoint or CEO to depart. Since there’s no company or central controller to blame, it’s challenging to pinpoint the causes of short-term price moves.
This doesn’t stop people from trying to find reasons, of course. Even in the Wild West of cryptocurrency, nothing happens without some sort of catalyst, although finding the reasons is easier said than done.
To his credit, Marathon Digital Holdings (NASDAQ:MARA) CEO Fred Thiel offered a slew of bearish factors potentially impacting bitcoin now.
In an interview with Yahoo! Finance, Thiel noted that Germany’s criminal bureau is selling approximately 50,000 bitcoin. Furthermore, Mt. Gox, a bitcoin exchange in Japan, is preparing to divest a large quantity of bitcoin next month.
Thiel also observed that cryptocurrency miners are “selling a large proportion of their… bitcoin that they’re mining as a way to continue to fund” their operations and expansions. Additionally, he cited “macro expectations impacting” risk-off assets.
Thiel further noted “just basically a lot of supply in the market” and “hash rates starting to come off” and “$1.2 billion of outflows from the ETFs.” That’s a whole lot of issues for the bitcoin bulls to contend with.
Finally, Thiel pointed to one more contributing factor, and it’s the one I actually agree with.
He simply said, “Bitcoin is historically very volatile.”
Indeed, it is. When all is said and done, it doesn’t matter whether Germany’s crypto dump or Mt. Gox’s bankruptcy proceedings or exchange-traded fund (ETF) outflows are the main culprit.
Whatever the primary and lesser causes may be, it’s not unusual for bitcoin to swing 30%, 40% or 50% in one direction or the other. That’s the nature of Wild West assets; they’re wild and will shake out emotionally unprepared investors.
Bitcoin is digital gold, not red or blue
It’s virtually impossible to avoid red-state-versus-blue-state political discussions in an election year. At the same time, level-headed investing means focusing on profit potential rather than political pontification.
That’s easier said than done, of course. Bernstein analysts and other financial commentators are prone to occasional bouts of political punditry. The best policy is to take their remarks with an oversized grain of salt.
Evidently, analysts with Bernstein determined that former president and current Republican presidential candidate Donald Trump is the pro-crypto representative of 2024:
If the election sentiment shifts more Republican, crypto would end up as the primary ‘Trump trade’ and hopes of a favorable regulatory regime would change the ‘use-case’ narrative around blockchains.
In contrast, TD Cowen analysts are evidently less confident that bitcoin will be a “Trump trade” in November:
If [Trump] suggests anything other than total support… this could feed anxiety that he will revert to the skeptical approach from his first term if he is re-elected.
Oddly enough, Thiel felt the need to weigh in on the crypto-candidate topic. In a Yahoo Finance interview, he even took it upon himself to speak on behalf of the former president:
Trump has obviously positioned himself as the candidate that is pro-bitcoin He believes that all bitcoin should be mined in the U.S. and has been very open in his relationships with bitcoin miners and people in the space.
Thiel further opined, “[The] Biden administration has been very hostile to bitcoin,” and there may or may not be evidence for this. My concern, really, is that some investors may lose slight of why bitcoin is appealing in the first place.”
Like gold, bitcoin is supposed to combat the destructive impact of oversupply and devaluation. However, unlike gold, bitcoin is frequently prone to steep price drops that are hard to explain.
Thus, the best response is not to worry so much about explaining every price move. If your plan really is to HODL (hold on for dear life), then don’t let politics lead to panic. Just know why you own bitcoin, stick to your original plan and don’t let a contentious election derail you from your long-term strategy.
