“Bitcoin, the asset that is expected to be the answer to all problems, is quietly and significantly weakened compared to the ‘rival’ gold”…
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Once expected to become “digital gold”, Bitcoin is disappointing amid the Ukraine crisis
Illustration - Photo: Reuters.
In the past, many cryptocurrency investors believed that Bitcoin would become a kind of "digital gold", playing the role of a safe investment channel like gold when political instability increased and inflation was high. However, at the present time, with both geopolitical uncertainty and high inflation, the Bitcoin price still cannot break out.
On Tuesday, the price of Bitcoin fell to a two-week low, when Russian President Vladimir Putin ordered troops to be sent into Ukraine's Donetsk and Luhansk breakaway regions after recognizing the independence of the two free republics. this claim.
Supporters of the idea of Bitcoin as “digital gold” believe that the world’s largest virtual currency can become a store of value like the metal gold. They believe that the price of Bitcoin will not be “harmed” and may even increase sharply, as financial markets fluctuate and the price of risky assets such as stocks decline. They also believe Bitcoin is a “storm shelter” from economic instability and inflation, which reduce the purchasing power of paper money.
With inflation in the US at a 40-year high, many would have expected Bitcoin to “shine” this time around. In January, the US consumer price index (CPI) increased by 7.5%, the highest since February 1982.
But on the contrary, the Bitcoin price has now dropped by about half from the record price of nearly $69,000 set in November of last year. This has led many analysts to question whether it is a mistake to assign Bitcoin the status of “digital gold”.
“Bitcoin is still in the early stages of maturation to be able to firmly claim its status as ‘digital gold,’” said Vijay Ayyar, vice president of cryptocurrency exchange Luno.
Bitcoin's latest price drop coincided with the drop in global financial markets. The S&P 500 index of the US stock market entered a correction market on Tuesday and continued to fall on Wednesday. The Bitcoin price is moving closer and closer to the stock market, as the correlation between the Bitcoin price and the S&P 500 increases over time.
Experts say that cryptocurrencies already have a closer relationship with other highly speculative assets in the market, such as technology stocks. Tech stocks have been under pressure recently on concerns that their massive valuations will be hard to sustain as the US Federal Reserve and other central banks begin to raise interest rates. and withdraw huge fiscal stimulus packages.
“The proportional relationship between cryptocurrencies and stocks has increased to a high level in the last few months, according to both the macro news related to inflation as well as the Russian-Ukrainian geopolitical situation.” B2C2 trader Chris Dick told CNBC. “This connection shows that Bitcoin is being viewed as a risk asset rather than a safe asset as it was hailed a few years ago.”
In fact, gold is showing an outperformance against Bitcoin. Spot gold prices hit a nine-month high on Tuesday, reaching nearly $1,914 an ounce.
“Bitcoin, the asset that is expected to be the answer to all problems, is quietly weakening and significantly weakened compared to the 'rivalry' of gold," said strategist John Roque of 22V Research identify. “We think the price of Bitcoin could fall to $30,000, even below this threshold, while gold could make a new all-time high.”
Bitcoin price movement over the past 5 years. Unit: USD/Bitcoin - Source: TradingView.
Bitcoin's drop has led many analysts to talk about a "crypto winter" - a term used to refer to a prolonged bear market in virtual currencies. The last time there was a “virtual currency winter” was in late 2017 and early 2018, when the Bitcoin price dropped by 80% from its then record of nearly $20,000.
“The increased adoption of cryptocurrencies by investors from the traditional asset market is a major driver of the positive relationship between Bitcoin and equities,” said Dick. However, he added: "But this relationship can be broken at any time considering that each market has different fundamental factors."
To more effectively compete with gold as a store of value, Bitcoin needs to gain wider acceptance, Ayyar said. “Bitcoin’s foundational elements have always worked to support the price of this virtual currency. It is a coin with a limited supply and not governed by any state.”
“However, Bitcoin needs to go through a monetization process in order to be held by a sufficiently large number of market participants, such as individual investors buying more Bitcoin, large institutions increasing their holdings. hold Bitcoin, and more countries buy Bit
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Crypto