DIVE, THEN BOUNCE!
The Bitcoin price has taken us on a roller coaster ride. First, the price of BTC saw a sharp increase after Donald Trump's victory in the US presidential election, reaching a new all-time high of over $109,000. But then, Bitcoin experienced a significant correction due to trade tensions between the United States and its trading partners.
In a recent analysis, Matt Hougan explains why Bitcoin often reacts during crisis moments – like the recent trade war initiated by Donald Trump – with a pattern called 'Dip then Rip'.
Indeed, although Bitcoin is perceived as a long-term store of value and protection asset, it tends to retract during periods of short-term volatility. A previous study by Bitwise showed that, on average, Bitcoin dropped 30% more than significant declines in the S&P 500.
However, this research revealed that those who remained invested in Bitcoin, or bought more after the dips, saw an average gain of +190% in the following year. A pattern that Matt Hougan calls 'Dip then Rip'. Because BTC lives with the fears and euphoria of financial markets, yet remains bullish in the long term.
This behavior can be explained by how Wall Street traders and investors evaluate assets, using the 'net present value' method. This method calculates the value of an asset today based on an estimate of its future performance.
Bitwise estimates that Bitcoin will be worth 1 million $ by the year 2029. Its current value depends on the 'discount factor' which reflects the risk perceived by the market.
Thus, we can understand the market's reaction to the trade war regarding tariffs. Indeed, these announcements have increased uncertainty in the market, which has raised the discount factor and lowered the current value of BTC.