Bitwise CIO explains why bitcoin often reacts to moments of crisis like Trump's tariffs with 'dip then rip' pattern

Bitwise Chief Investment Officer Matt Hougan said that bitcoin reacts to moments of crisis — like the recent President Trump tariff-driven pullback — the way it does due to how Wall Street values assets and its trickle-down effect on the "invisible hand" of the market.

While bitcoin is often referred to as a hedge asset for the longer term, it tends to pull back sharply during periods of short-term volatility, frustrating many investors, Hougan said in a Tuesday memo to clients.

Hougan noted a prior Bitwise study showing that, on average, bitcoin fell 30% more than significant SP 500 declines on a relative basis. However, that research also showed that those who had stayed invested or bought more after pullbacks saw an average gain of 190% over the following year, in a pattern Hougan calls "dip then rip" — one of the most consistent in crypto.

Essentially, much of Wall Street revolves around the idea of "net present value," Hougan explained—a method for calculating the value of an asset today based on an estimate of its future performance.

Discounted cash flow analysis is most commonly used to determine a company's present value by discounting its future cash flows, he said. For example, if a company is expected to earn $1 annually for the next 20 years, it's not worth $20 today, as the value of money decreases over time. Analysts calculate the present value by applying a discount rate, typically based on the risk-free rate of U.S. Treasuries, plus an additional rate reflecting the company's risk. Small changes in the discount rate can significantly impact the company's current value. For instance, a 5% discount rate values the company at $12.46, while a 10% rate reduces it to $8.51 — more risk leads to a higher discount and a lower present value.

Bitcoin's discount factor amid the Trump tariff-fueled sell-off

Of course, bitcoin doesn't have cash flow, the Bitwise CIO acknowledged, arguing that the same idea applies nonetheless. Bitwise estimates bitcoin will be worth $1 million in 2029. However, its current value depends on the discount factor, with a 50% discount rate valuing it at $218,604 and a 75% discount rate at $122,633, Hougan explained — a framework that can be used to understand the market’s reaction to the tariff-driven pullback.

Bitcoin rose sharply following Trump's presidential election victory in November, jumping from around $70,000 to an all-time high above $109,000 by Inauguration Day in mid-January. However, recent heavy tariff announcements, predominantly against imports of goods and services from China, Canada, Mexico and the EU, have, among other factors, shaken both traditional and crypto markets with bitcoin falling around 30% since then to a low of $76,700 earlier this month. The SP 500 dropped around 10% during the same period.

Hougan referenced recent commentary from bitcoin infrastructure and institutional financial services firm NYDIG on the tariff-related sell-off, which stated, "What does bitcoin have to do with tariff wars? Nothing, other than it's a highly liquid, globally available asset that trades 24/7. If anything, bitcoin stands to benefit from the rise in global entropy, the political and economic disorder created by the administration."

NYDIG is suggesting that tariffs create a short-term challenge for bitcoin and other liquid assets by injecting uncertainty into the market, which increases the perceived risk and the discount factor. However, longer term, they work in bitcoin's favor, as it serves as a hedge against political and economic instability, raising its long-term price target, Hougan explained.

For example, while tariffs might increase Bitwise's 2029 price target for bitcoin from $1 million to $1.1 million, they also raise the discount factor from 75% to 85%, which lowers its current net present value from $122,633 to $109,521 — explaining the short-term pullback. However, if the market stabilizes and the discount factor decreases, bitcoin is expected to recover and exceed its previous value, he added.

"To be clear: I’m not suggesting everyone in the market is actually doing this math. Instead, I’m saying that the invisible hand of the market is walking through these calculations, feeling its way to new price targets," Hougan said. "If you’re a long-term investor, these short-term spikes in the discount factor are a chance to get in at a discount. From where I sit, I've never been more bullish."

Meanwhile, though initial market reaction to Trump's Strategic Bitcoin Reserve executive order was lukewarm , a concrete accumulation strategy could also dramatically shift sentiment, providing a further bullish catalyst, BRN analyst Valentin Fournier told The Block.

"If a government-led bitcoin accumulation race begins, it could trigger a sudden and massive price surge," he said, referencing Trump's Presidential Working Group on Crypto Executive Director, Bo Hines, who recently stated that the U.S. government is exploring various ways to accumulate as much bitcoin as possible without requiring taxpayer contributions. 

Earlier this month, Hougan said the "market has this wrong" and is "overthinking things" following Trump's crypto reserve announcements, with the news being bullish, despite its flaws.