Bitwise CIO Memo: Bitcoin's Short-Term Dip Is a Low-Entry Opportunity; I've Never Been This Optimistic
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Bitwise CIO Memo: Bitcoin's Short-Term Dip Is a Low-Entry Opportunity; I've Never Been This Optimistic
Data shows that in the year following a sharp correction, Bitcoin's average gain reaches as high as 190%, significantly outperforming other assets.
Navigating Web3 tides with focused insightsAuthor: Matt Hougan, Chief Investment Officer at Bitwise
Translation: TechFlow
Why Bitcoin Behaves So Differently During Market Crises
One of the most frustrating aspects for Bitcoin holders is that its performance during market crises often defies expectations.
Although Bitcoin is frequently viewed as a risk hedge, it tends to decline in the short term when markets experience sharp volatility.
A recent example occurred last week, when both stock and Bitcoin markets suffered significant sell-offs amid rising concerns over tariffs.
My colleague Juan Leon conducted an in-depth analysis of this phenomenon. He examined all instances over the past decade where the S&P 500 dropped more than 2% in a single day, finding that Bitcoin on average declined by 2.6%—even more than equities.
While this may seem discouraging, Juan’s research also revealed a crucial insight: investors who hold through these downturns—or better yet, buy the dip—can achieve extraordinary returns. Data shows that in the year following such sharp corrections, Bitcoin has on average surged by 190%, significantly outperforming other asset classes.
I call this pattern “Dip Then Rip.” Historically, it stands as one of the most consistent trends in the cryptocurrency market.
In this week’s analysis, I will explore the deeper mechanics behind this phenomenon.
Wall Street’s Logic of Asset Valuation
Wall Street values assets almost entirely through the lens of “Net Present Value” (NPV).
In simple terms, NPV calculates today’s value of an asset based on projections of its future performance.
The most common method used is Discounted Cash Flow Analysis (DCF). For instance, if a company is expected to earn $1 per year for the next 20 years, its present value clearly isn’t $20. Investors must account for time and risk, meaning future earnings need to be “discounted” to reflect their current worth.
The core of DCF lies in determining the “discount rate.” Analysts typically start with the yield on short-term U.S. Treasury bonds—the so-called “risk-free rate”—then adjust upward based on the uncertainty of a given stock or market. For example, if the risk-free rate is 4.37%, a low-risk asset might carry a discount rate of 5%, while high-risk assets could face rates of 10%, 20%, or even higher.
Due to the compounding effect over multiple years, even small changes in the discount rate can significantly impact an asset’s current valuation (NPV). Take our hypothetical $20 company: if its discount rate increases from 5% to 10%, its present value drops from $12.46 to $8.51.
Thus, the higher the perceived risk, the higher the discount rate, and the lower the current valuation of the asset.
Applying Discounted Cash Flow Analysis to Bitcoin
Even though Bitcoin does not generate cash flows like traditional assets, similar valuation logic still applies.
Take Bitwise’s own forecast: we believe Bitcoin could reach $1 million by 2029. What should its fair value be today?
This depends on the discount factor—essentially, how risky the market perceives Bitcoin to be. If the annual discount rate is 50%, Bitcoin’s net present value would be approximately $218,604. But if the discount rate rises to 75%, that NPV falls to $122,633.
Therefore, Bitcoin’s NPV hinges on two key variables: 1) expectations about long-term price targets (e.g., $1 million by 2029); and 2) the market’s assessment of its risk (the discount rate).
Understanding the Market Reaction to Tariff News
Using this framework, we can analyze how tariff-related developments affect Bitcoin.
News tied to economic uncertainty impacts Bitcoin in two primary ways. NYDIG, one of the most insightful firms in crypto, commented on the recent tariff-driven selloff:
“What do trade tariffs have to do with Bitcoin? Almost nothing—except that Bitcoin is a highly liquid, globally accessible, 24/7-traded asset. If anything, Bitcoin may benefit from this global entropy—that is, political and economic chaos caused by government policy.”
Two insights emerge:
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In the short term, tariff tensions increase market uncertainty, putting downward pressure on Bitcoin and other highly liquid assets, thereby increasing Bitcoin’s discount rate.
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In the long term, Bitcoin’s role as a hedge against political and economic risks may lead to higher long-term price expectations.
Let’s plug this into the discounted valuation model. Suppose the impact of tariffs raises Bitcoin’s long-term price target from $1 million to $1.1 million due to increased macro instability, but simultaneously pushes the discount rate from 75% to 85%. The calculation shows that Bitcoin’s net present value would fall from $122,633 to $109,521—even though we’ve raised our 2029 price target by 10%. Despite greater long-term optimism, the near-term price declines.
This explains the observed market correction. However, as sentiment stabilizes and the discount rate reverts from 85% back to 75%, Bitcoin’s price won’t just recover—it may surge beyond previous levels. This is the essence of the “Dip Then Rip” dynamic.
Implications for Long-Term Investors
It’s important to note that this doesn’t mean every investor is explicitly calculating these mathematical relationships. Rather, it’s the market’s “invisible hand” that implicitly follows this logic to gradually adjust price expectations.
For long-term investors, understanding this mechanism is critical, as it helps focus attention on long-term returns rather than short-term noise.
In fact, the temporary discount in Bitcoin’s price caused by elevated discount factors presents a compelling buying opportunity. I have never been more bullish on Bitcoin’s long-term future.
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