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The bitcoin narrative could be tested this week as investors monitor tense developments between Ukraine and Russia and weigh the possibility of the Federal Reserve raising interest rates by 50 basis points, or 0.5 percentage point, in March.
The largest cryptocurrency by market cap coin has long been regarded by early investors and enthusiasts as a safe haven asset, one that could ideally offset risk in investors’ portfolios and limit exposure to negative shocks.
However, in recent months bitcoin has has been trading like stocks, specifically as riskier growth-oriented stocks. He is still recovering from a big drop since the beginning of the yearwhen rising rates prompted investors to shed positions in technology and other risky assets.
“Bitcoin is being labeled by some as a stateless currency, and in fact, it has performed well in the past when there have been geopolitical tensions, so we might expect some demand as a safe haven asset,” said Yuya Hasegawa, a crypto market analyst at Japanese bitcoin exchange Bitbank. .
However, “the change in the landscape made Bitcoin fragile in the face of US stock market volatility, so Bitcoin investors may not be able to feel comfortable until the situation at the Russian-Russian border and Ukraine begins to calm down,” he added.
The bitcoin price is down about 10% on the year, according to Coin Metrics, and about 38% from its November all-time high.
With an environment of rising rates, technology and growth stocks could stay in a chokehold for a moment. That means if this is crypto wintera term that refers to a prolonged bearish period, it could last for several more months.
“If we’re in a bear market, we’re going to see another eight or nine months side-to-side to the downside.” [movement]which is an opportunity for tourists to leave the market and the real players continue to build this technology,” said Chris King, CEO and founder of Eaglebrook Advisors.
Katie Stockton, founder of Fairlead Strategies, said that a resistance level at $46,730 should remain intact this week. Support is near $37,360, but Bitcoin isn’t looking for a short-term test, she added.
Seasoned crypto investors have been here before and are rarely spooked by prolonged low periods. Bitcoin has only experienced one crypto winter before: in 2018, its price plummeted by 80% from its all-time high. The market has evolved significantly since then.
Low periods are a time for the industry to clean up and build the infrastructure and applications that will make things easier for the next wave of newcomers in the next bull market. Between decentralized finance, non-fungible tokens, the metaverse, and more, there is a lot of interest in new sectors of crypto that go beyond bitcoin.
“Use cases in adoption are increasing,” said Rodrigo Vicuña, chief financial officer of Prime Trust. “We are starting to scratch the surface of where a lot of blockchains are going.”
For example, interest – and money – in NFTs skyrocketed in 2021. Most people still see them only as digital art, a concept that is hard for many to grasp. People also overlook other potential uses of NFTs. For example, an NFT from a house deed could provide ownership history, while NFT medical records can offer patients a secure way to share information with doctors, Vicuña said.
King noted that despite new interest in decentralized finance, or DeFi, it is still too early and underdeveloped for it to take off. DeFi allows users to engage in lending and other financial activities using the blockchain and to do so without intermediaries.
“We are very long DeFi on some of our strategies,” King said as an example. “DeFi is still speculative. The infrastructure is still being built, it’s still clunky and hard to use.” Bitcoin between 2013 and 2016 was difficult to buy, but companies like Coinbase and Gemini made it easier. DeFi needs that path to improve it and make it less speculative. It just takes time.”
With bitcoin’s cycle lengthening and returns declining, these other assets play a significant role in introducing new entrants to crypto in general and increasing adoption. Bitcoin itself has yet to find its killer app — that is, the feature that makes it indispensable, King said — but growing adoption will get it there.
“The biggest thing that we track and look at from both a short-term and a long-term perspective is adoption, it’s really all that matters,” King said. Like Facebook, Instagram and Uber, he said, “the hype around these assets and the rising price led to more users joining the network, which is ultimately what matters to us.”