Bitcoin's Black Monday

Crypto's massive sell-off alongside global markets in recent days will test industry narratives that the world's largest digital asset is a risk-on investment, but also, a safe haven.

The big picture: Bitcoin's roughly 30% decline over the last seven days — coinciding with smaller, yet significant, drops in major stock indexes — doesn't help prove the latter.

• But characterizing bitcoin as a risk-on asset, which tends to do better when interest rates are low (and poorer when rates are high), oversimplifies the factors driving the world's oldest cryptocurrency, some in the industry argue.

What they're saying: "We cannot draw conclusions from a day like this," Ed Hindi, chief investment officer of Tyr Capital tells Axios this morning. "It's absolutely normal to see correlations move to 1 whenever there is so much fear in the market."

• "No asset class is going to withstand such a rush to the exit," he says. "This is pure unwinding of leverage across the board."
• Hindi explained that the combination of Japan's central bank actually hiking rates, and a U.S. Fed that has been too slow to cut rates was part of the problem.

Zoom out: In traditional finance, there is a hard line between "risk-on" assets and "risk-off" ones.

• "Bitcoin has introduced a paradigm that is challenging that distinction," ARK Invest's Yassine Elmandjra said in a research report published this year.
• "Its revolutionary technology and nascency are risk-on, while, as a monetary asset, its absolute scarcity and role as a bearer instrument are risk-off — thus blurring the traditional distinction."

Bitwise Asset Management's chief investment officer, Matt Hougan, told Axios in an interview last month: "My best feel for what really resonates with many advisers puts bitcoin in the digital gold or monetary asset camp and Ethereum in the technology camp."

State of play: Hougan this morning compared the selloff to the global capital markets panic of March 2020 "when the reality of COVID set in."

• "People smash the sell button for liquid assets during broad-based panics."

What we're watching: How investors view bitcoin when this dust settles.

• Crypto plunged steeply to below $50,000 during this morning's widespread selloff, but what's been eating the crypto market lately is macro and goes back to last week.

Zoom in: Hiring slowed in July, per Friday's U.S. jobs report, sparking a new "dual narrative," Jake Ostrovskis, an over-the-counter (OTC) trader at Wintermute, said on social media today.

• There's "both a potential policy mistake by the FOMC [Federal Open Market Committee] and concerns about economic growth."
• As of 11:30am ET, bitcoin has rebounded off its bottom, to $54,300.

Our thought bubble: 🤷‍♀️