Nurtured in skepticism
The last time Bitcoin dropped to such a low price range was 296 days ago, on July 21, 2021. At that point, in just 24 hours, the crypto market evaporated $89 billion. Bitcoin, as the lead currency, has lost 50% of its value from its peak of $65,000 (April 2021).
More ominously, Bitcoin has repeatedly failed to conquer the $40,000 resistance level before, creating a ready-for-run sentiment in case the price continues to decline.
China’s complete ban on cryptocurrency mining and trading, as well as the New Jersey Attorney General’s ruling ordering crypto lender BlockFi to stop paying interest on accounts, are believed to be The main reason people are “shaken” with the idea of holding Bitcoin as an investment asset.
Investor sentiment has returned to the inherent skepticism towards crypto assets. Even when the buying force started to push the Bitcoin price back, up more than 7% the next day, not many people believed in the recovery of this leading coin.
Vijay Ayyar, Director of Asia Pacific crypto exchange Luno, thinks Bitcoin’s rise in value after a chain of declines is like a trap (literally: “dead cat bounce”, just asset prices rise after a sharp decline before continuing to decline).
“Overall, there are a lot of macro factors that are putting pressure on risk assets, like inflation concerns, Covid, regulatory scrutiny. I think Bitcoin will return to the $20,000-$40,000 price range before bouncing back up,” Ayyar said at the time.
Meanwhile, Nelson Chu, managing director of investment fund Kinetic Capital, agrees that Bitcoin can “fall below $ 25,000”.
But it was after the “darkest” moment, that Bitcoin rose to attract all the attention of the traditional financial world, when in turn conquered the resistances, led the cryptocurrency market to explode and peaked at 69,000. USD in November 2021.
Mature but not as expected
Risk assets are always volatile, especially for the nascent crypto market. During its journey, Bitcoin recorded several major bearish waves, with the common ground signaling a turning point afterward.
The price drop from $64,000 to $30,000 in April-July 2021 was the foundation for the subsequent strong rally, marking the boom and position of crypto-assets.
Meanwhile, the series of falling days from November 2021 to January 2022 shows that this currency has not escaped the shadow of speculative assets. Within 2 months, Bitcoin was continuously taking profits, pushing the price to only $ 35,000 – 36,000.
Paul Krugman, a Nobel laureate economist, warned that the volatility of the cryptocurrency market bears similarities to the subprime mortgage crisis of 2007. He said that investors believed in the hype of cryptocurrencies without really understanding the risks it brings.
The Russia-Ukraine geopolitical crisis seems to rekindle hopes of Bitcoin becoming a safe-haven asset. But again, the rally can only push this currency to $ 48,000 before returning to “in tune” with the general trend of the world financial market.
“The overall market has shown a correlation between Bitcoin and equities,” said Armando Aguilar, Research Director of Alternative Strategy at Ledn, a digital asset credit and savings platform. “The S&P 500 and Nasdaq have the greatest similarity at 0.88% and 0.91%, respectively.”
In the past 4 months, Bitcoin has only touched the price of $45,000 a few times and has not reached the $50,000 mark since December 25, 2021. However, even with its current decline, the coin is still doubling its value just a few years ago.
Short-term volatility, long-term growth
Since the beginning of 2022, Bitcoin investors have faced many negative signals related to inflation, geopolitical crisis as well as a wave of rising interest rates. The crypto market closely follows the movements of the stock market, becoming more sensitive to macro changes.
At the end of last year, many investors were still optimistic that Bitcoin would be worth $100,000. According to research by Deutsche Bank, 25% of investors believe that the coin will surpass 110,000 USD in the next 5 years.
The pessimists expect Bitcoin to drop to $10,000 this year, but most still believe in the bright scenario for the leading cryptocurrency, just slower than expected.
“I think Bitcoin will fluctuate in the short term and grow in the long term,” said Kiana Danial, founder of Invest Diva and author of “Cryptocurrency Investing for Newbies.”
Jurrien Timmer, Global Macro Manager at Fidelity Investment, predicts that investors can expect a long-term increase in the price of Bitcoin due to the “natural movement” of the market.
If viewed from the perspective of risky assets like technology stocks, it is not unfounded that the currency will grow in the long term but will experience strong fluctuations in the short term.
According to CoinShares data, Bitcoin adoption rate is increasing year-on-year at 113%, compared to the previous internet only 63%/year. CoinDesk also reported that the number of global crypto wallets increased by 45% from January 2020 to January 2021, reaching approximately 66 million wallets. Meanwhile, Coinbase exchange claims it has more than 73 million customers, and according to a recent Gemini report, more than 21.2 million Americans already own crypto assets.
In addition, the push by authorities to develop a management process for cryptocurrencies will contribute to improving investor confidence, which can also be considered a signal of cryptographic assets, in which have Bitcoin grow more stable.