The Secret Pattern Behind Bitcoin’s Wild Swings
Ever wondered why Bitcoin crashes hard during financial turmoil—only to bounce back stronger than ever? It’s not just chaos; it’s a predictable pattern. Bitwise CIO Matt Hougan calls it “dip then rip”, a cycle that explains why Bitcoin first plummets in times of crisis but then surges to new highs. Understanding this pattern can give traders an edge, especially in volatile times like Trump’s recent tariff war.
Breaking It Down: Why Bitcoin Dips in a Crisis
Hougan explains that Bitcoin tends to drop harder than the stock market during economic uncertainty, but history shows that these crashes set up massive gains later. This is because of how Wall Street values assets using the “net present value” (NPV) method.
- Short-Term Panic Selling – When bad news hits (like Trump’s tariffs), investors sell risky assets, including Bitcoin, leading to a sharp drop.
- Discounted Future Value – Investors estimate Bitcoin’s long-term value but apply a “discount” based on risk and uncertainty. The more fear in the market, the higher the discount, making Bitcoin’s current price lower.
- Long-Term Rebound – Once the market stabilizes and fear subsides, the discount factor decreases, allowing Bitcoin to skyrocket back up.
Hougan’s research shows that Bitcoin, on average, falls 30% harder than the S&P 500 during market crises—but those who buy the dip often see gains of 190% over the next year.
Trump’s Tariffs and Bitcoin’s Recent Drop
Recently, Trump imposed new tariffs on China, Canada, Mexico, and the EU. This caused a market-wide panic:
- Bitcoin fell 30%, dropping from over $109,000 to $76,700.
- The S&P 500 also declined by 10%.
Despite the short-term drop, institutions like NYDIG argue that Bitcoin benefits from global instability in the long run. As governments disrupt traditional markets, Bitcoin becomes more attractive as a hedge against uncertainty.
How This Knowledge Can Help You
- Key Takeaway #1: Market Crashes Are Buying Opportunities – Bitcoin historically follows the “dip then rip” cycle. Smart investors take advantage of these dips rather than panic-selling.
- Key Takeaway #2: Understand the Discount Factor – Bitcoin’s price today is based on future expectations, which get discounted in times of crisis. But once fear fades, the price readjusts higher.
- Key Takeaway #3: The Bigger Picture Matters – Short-term events (like Trump’s tariffs) may hurt Bitcoin temporarily, but long-term trends (like increasing adoption and government accumulation) push it higher.
Hougan believes that if the U.S. government starts accumulating Bitcoin, it could trigger an explosive price surge, possibly igniting a “Bitcoin accumulation race” among nations.
Why This is Important for Your Knowledge
If you’re serious about crypto trading and investing, recognizing the “dip then rip” pattern can help you make smarter moves. Instead of fearing market crashes, you can use them as opportunities to buy at a discount and ride the next rally.
Hougan puts it simply: “I’ve never been more bullish.” If history repeats itself, today’s dips could be tomorrow’s biggest gains.
