“Bitcoin’s Biggest Dip Since August May Signal More Pain, Says Market Strategist”

Bitcoin (BTC) could remain under pressure for some time, offering a potential “buy the dip” opportunity for investors, according to Andre Dragosch, Head of Research for Bitwise in Europe. After a notable 8% drop last week, Dragosch, who has consistently been bullish on bitcoin, has taken a more cautious stance, warning that further declines could be on the horizon.

Bitcoin, the largest cryptocurrency by market capitalization, experienced an 8.8% dip, falling to approximately $95,000 last week. This marked the most significant drop since August, according to data from TradingView and CoinDesk Indices. The decline followed the Federal Reserve’s signals of fewer rate cuts in the coming year, compounded by the central bank’s statement that it does not hold BTC and has no plans to change this stance. The Fed’s “hawkish” rate outlook also affected traditional markets, contributing to a 2% fall in the S&P 500 and a 0.8% increase in the dollar index, reaching its highest level since October 2022. Additionally, the 10-year Treasury yield rose 14 basis points, indicating a bullish breakout from a technical perspective.

Dragosch suggests that this risk-off environment could persist for a while. “The Fed is caught between a rock and a hard place. Despite three rate cuts since September, financial conditions have continued to tighten. Meanwhile, inflation indicators, such as Truflation’s measure for U.S. inflation, have re-accelerated,” he told CoinDesk.

Dragosch was among the few who accurately predicted a significant BTC rally in late July, when market sentiment was largely negative. BTC, then priced near $50,000, went on to surpass $100,000 for the first time in its history.

While Dragosch acknowledges that more price volatility and potential losses are likely in the short term, he sees this as an opportunity for long-term investors, particularly due to Bitcoin’s ongoing supply shortage.

Rising Treasury yields, which signal higher borrowing costs and the appeal of fixed-income investments, typically result in outflows from riskier assets like cryptocurrencies and stocks. A stronger dollar also makes USD-denominated assets more expensive, reducing capital inflows into markets such as bitcoin.

Drawing parallels to inflation patterns in the 1970s, Dragosch notes that persistent consumer price index (CPI) inflation has raised concerns within the Fed about a potential second wave of inflation. He suggests this has led to a more cautious approach on rate cuts. “The Fed is likely wary of a double-hump inflation scenario reminiscent of the 1970s, which could explain their reluctance to cut rates aggressively,” Dragosch explained. “If they cut rates too quickly, inflation could accelerate significantly. If they do too little, the economy may suffer.”

However, Dragosch believes that eventually, the financial tightening caused by higher yields and a stronger dollar will compel the Fed to act. In the long run, Bitcoin’s supply scarcity remains a major bullish factor, offering potential for future growth despite short-term challenges.