The traditional 4-year Bitcoin price cycle has been literally disrupted by this 2024, but according to Coinbase there is more: it is possible that any dips will be “bought more”.
This is what they wrote in the Weekly Market Commentary published last Friday.
The price dips of Bitcoin according to Coinbase
The term dip in English means immersion.
In the financial field, it refers to a strong and substantial drop in prices, like a real plunge downwards.
The term is mainly known thanks to the expression “buy the dip”, which means “buying during the dips”, that is, purchasing an asset after its price has dropped significantly.
The idea behind the buy the dip is to take advantage of the decline to buy at lower prices, in the hope that they will subsequently rise allowing to sell at a significantly higher price.
The problem, of course, is that there are practically never certainties that a certain price will rise after falling, so the practice of buying the dip is actually dangerous.
However, real deals are made by buying after prices have fallen, especially if they have fallen a lot, even if in this case higher risks are taken. On the other hand, higher risks also mean greater potential losses, but often also greater potential gains.
Who buys during the dips
One well-known thing is that amateur occasional speculators, who belong to the category of retail investors, usually buy when the price has risen, caught up in the enthusiasm.
Indeed, the famous FOMO (Fear of Missing Out) is typical of retail investors who, instead of making their purchase decisions based on rational strategies, let themselves be influenced by their emotions.
And so, it is often the whales and institutional investors who buy during the dips.
In the crypto whale markets there are some, but there are still few institutional investors. Moreover, it must be said that institutional investors as a whole are able to move significantly higher amounts compared to those moved for example by retail whales.
And so far in the crypto markets, it was mainly retail whales buying during the dips, while it was much rarer for institutional investors to do so.
Let it be clear, there are institutional investors who have bought the dip on Bitcoin over the years, but to a significantly limited extent.
Coinbase’s hypothesis on Bitcoin price dips
In the report published on Friday, Coinbase analysts state that increased acceptance of Bitcoin as a form of “digital gold” could drive demand from a new subgroup of investors in this market.
These are investors who are well established in traditional markets, but still much less present in the crypto markets.
The landing on the US stock exchanges of ETFs on Bitcoin spot, in January, could also allow institutional investors overall to indirectly purchase BTC as hedging instruments against potentially expansive monetary policies of central banks.
Institutional investors have been present in the Bitcoin market for years, but to a still extremely limited extent. Many of them, moreover, cannot even by law invest directly in BTC, because it is not a regulated asset in the USA.
According to Coinbase analysts, the capital unlocked in this way by ETFs may represent the biggest change in the Bitcoin market structure since 2020. In fact, they even claim that these capital unlocks, together with the upcoming halving, make them widely “constructive” for the entire second quarter of 2024.
As a result, they also believe that during any drops in BTC price there will likely be more aggressive purchases compared to previous cycles, even though volatility will remain the same.
This could also be added to a further, but partial, reduction in volatility compared to previous cycles thanks to wider access to capital from the Bitcoin market, again due to the launch of spot BTC ETFs in the USA.
The change in structure
Coinbase analysts are not the only ones talking about a change in the very basic structure of the Bitcoin market thanks to the new ETFs.
Indeed, what is changing is primarily the distribution of Bitcoin derivatives, which have now also arrived on traditional US stock exchanges, but above all the nature of the investors themselves.
In particular, institutional investors have goals, strategies, and behaviors that are very different from retail investors, and especially from occasional amateur speculators.
Until now it would have been incorrect to say that the Bitcoin market was mainly made up of institutional investors, while from now on such a statement over time could instead become more and more true.
So just as in traditional stock exchanges, volatility is overall lower compared to crypto markets, a mass entry of institutional investors into BTC ETFs could significantly reduce volatility even on the price of Bitcoin.
He would do it with more purchases during strong declines, and probably also with more sales during bubbles.
With 2024, the first era of Bitcoin probably comes to a close, and a new one begins in which BTC becomes a full-fledged protagonist in the traditional global financial sector.