Bernstein says bitcoin not to blame for price crash, remains a 'Trump trade' ahead of US elections

Analysts at research and brokerage firm Bernstein said “it’s not bitcoin’s fault this time” as the cryptocurrency plunged amid U.S recession fears and dislocation in the yen markets.

Prices in the 24/7 crypto market fell dramatically over the weekend and into Monday morning — with bitcoin plummeting almost 20% to below $50,000 at one point — while ether lost all its year-to-date gains as its price dropped nearly 30% since Friday to below $2,200.

“Bitcoin’s initial reaction as a ‘risk off’ asset is not surprising,” Gautam Chhugani, Mahika Sapra and Sanskar Chindalia wrote in a note to clients on Monday. “This has often been the pattern for bitcoin markets (seen before in March 2020 flash crash too), particularly, as it is the only market trading over the weekend. We remain calm.”

“We don’t see any incremental negatives for crypto here,” the analysts added. “If rate cuts and monetary liquidity is the usual template response to U.S. recession fears, we expect ‘hard assets’ such as bitcoin (digital gold) to reprice up.”

Institutional adoption trends

Bernstein argues that — unlike prior cycles, when it was harder to invest in bitcoin via crypto exchanges — spot Bitcoin exchange-traded fund products are now live and highly liquid, trading around $2 billion in daily volume, with approvals from major wirehouses beginning to come through.

Last week, investment bank Morgan Stanley said it would allow its financial advisors to offer spot Bitcoin ETFs to select clients from Aug. 7. “We expect more wirehouse approvals into Q3 and Q4, thus providing further on-ramps for asset allocation to bitcoin. Bitcoin ETF flows have remained sticky so far, exceeding $17 billion year-to-date,” Chhugani, Sapra and Chindalia wrote.

The analysts argued the new spot Ethereum ETFs were also off to a good start, generating $1.6 billion worth of inflows, despite Grayscale’s converted and higher-fee fund, ETHE, registering an overwhelming $2.1 billion in net outflows. “Ether’s price would like to see the flows stabilize over the next few weeks, before it begins a new demand cycle,” they said.

US politics remains a short-term catalyst

However, bitcoin remains a “Trump trade,” according to the Bernstein analysts, given the market favoring the U.S. presidential candidate’s pro-crypto stance. “It’s not surprising that as the Polymarket odds between Trump and Harris narrowed, bitcoin and crypto have traded weak,” they said. “We expect bitcoin and crypto markets to be range bound until the U.S. elections, trading off catalysts such as the presidential debate and the final election outcome.”

Presidential election odds narrow. Image: Bernstein.

Overall, Bernstein anticipates the crypto market to respond to macroeconomic and election cues throughout Q3. However, the analysts predict that if broader equity markets recover off the back of a Fed response, bitcoin and crypto markets will follow suit.

Chhugani maintains long positions in various cryptocurrencies.