ETF Manager Outlines Conditions for Bitcoin's Next Growth Phase

Bitwise Highlights Fed Rate Cut as Key Factor for Bitcoin Rally

Bitwise states that significant corrections in Bitcoin historically lead to new growth phases.

Despite a significant market correction, Bitwise's Chief Investment Officer Matt Hougan sees new investment opportunities and has identified key factors that could push Bitcoin into a new growth wave. He shared these insights in an investor's note.

Bitwise is one of the companies that have launched their own spot ETFs for Bitcoin and Ethereum (ticker BITB and ETHW on NYSE). The total value of assets in the company's cryptocurrency funds stood at $2.2 billion as of August 6.

In his analysis, Hougan asserts that Bitcoin could become one of the main beneficiaries of the current market turbulence.

"Historically, whenever we’ve seen such panic, cryptocurrencies initially declined in price, but over the following year, they showed growth," Hougan wrote.

Hougan identified several factors favoring an optimistic outlook, including the anticipated reduction of interest rates by the Federal Reserve (Fed) and a repeat of the rally seen during the pandemic period.

Due to the stock market crash, there have been increased calls for the Fed to cut interest rates and inject liquidity into the financial system. Cryptocurrencies, often viewed as higher-risk assets, tend to rise in a loose monetary policy environment.

"If history teaches us anything, we expect the Fed to ease monetary policy in response to economic instability, as it did in 2010 and 2020," Hougan wrote, adding that the market has significantly increased the likelihood of a rate cut at the Central Bank meeting in September.

The Bitwise CIO drew parallels between current market conditions and the onset of the COVID-19 pandemic. In March 2020, Bitcoin experienced a drop but subsequently began a parabolic rise. The price of the leading cryptocurrency increased by more than 1,000% over the year.

"In hindsight, there was no reason for panic in March 2020. Such an opportunity to buy Bitcoin comes once in a decade," Hougan noted.

Ultimately, trying to time the market perfectly is a waste of time, Hougan said. "Get rid of the urge to watch prices throughout the day and focus on where Bitcoin might be in a year, five years, and ten years," Hougan advised.

Hougan’s optimistic assessment contrasts with the prevailing mood of fear and uncertainty gripping cryptocurrency market participants.

On August 6, the Fear and Greed Index on the crypto market dropped to levels seen in January 2023 and is in the "extreme fear" zone at 17 out of 100. In March, when Bitcoin's price peaked, the index was in the "extreme greed" zone at 90.

The Fear and Greed Index is designed to protect investors from excessive emotional reactions, specifically: "buying during moments of overall euphoria" and "selling during moments of overall panic."