Bitcoin is a successful inflation hedge, but investors need to be careful right now.
The skepticism around Bitcoin and investing in cryptocurrencies has reduced with the growing dominance of digital assets in the financial and economic markets. It is quite shocking, yet spectacular, to track the rising influence of cryptocurrencies in institutional and personal investment strategies. Among all other digital assets, Bitcoin has emerged as one of the most popular digital assets that can be used as a store of value, and also as a hedge against inflation. When inflation rises, the value of the national fiat currency degenerates, making it extremely difficult for investors to hold value in times of crisis. This is where Bitcoin comes in. During times of financial crises, investors generally purchase assets that tend to rise in value more than inflation. In return, this ensures that the overall value of their investments stays at a considerable rate. So, the rapid growth and adoption of Bitcoin have made investors and crypto analysts realize that crypto is a perfect investment as an inflation hedge.
Recently, after the crypto market meltdown by the end of 2021, Bitcoin lost more than half of its market dominance as its value fell as low as US$39,000 from its all-time high which was US$68,000. This is one of the many reasons why experts seem to think that the crypto is finally losing its reputation as an inflation hedge. Since the emergence of the Covid-19 pandemic, the importance of Bitcoin was realized not only by individual investors but also by nations, which is why El Salvador became the first country to accept Bitcoin as a legal tender. Pursuing that, many other nations and major business organizations stepped in to adopt Bitcoin as a legal mode of payment. But currently, the conditions of the BTC token seem to be dwindling amid its degrading market value. Besides this, one of the many reasons why several financial experts believe that Bitcoin is not a suitable hedge against inflation is because of investor sentiments. For any asset to become an inflation hedge, investors must actually acknowledge it as an asset and hold it when its value rises. But currently, it isn’t the case right now.
So, how has Bitcoin managed to remain as a hedge against inflation?
If we look at the swinging conditions of Bitcoin prices lately, it will not seem like the BTC token can actually make it a successful inflation hedge. But since its launch, the BTC token has successfully retained its fame as a safe haven during economic crises, and due to various reasons. Like gold, Bitcoin is not governed by any particular currency or economy. Instead, it acts like a global asset class that demonstrates its worldwide influence. According to experts, Bitcoin may also serve as a better option than equities since it sidesteps many of the political and economic risks accompanied by the stock market.
Furthermore, one of the best reasons why you should buy Bitcoin before you witness times of turmoil is because Bitcoin’s supply is fixed at 21 million coins, nearly 19 million of which have already been mined. This makes Bitcoin extremely valuable, in times of crisis.
Even if things are not looking so great for the BTC economy right now, investors and analysts are quite optimistic about its future prospects. In fact, even after its massive volatility, there are several investors and BTC fanatics who believe that Bitcoin will once again reign as the all-powerful king of the crypto market, and yield substantial amounts of profits for its investors.
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TA: Bitcoin Price Moves Higher In Range, $30.6K Still Presents Resistance
Bitcoin remained strong above the $28,500 support against the US Dollar. BTC is rising, but it must clear $28,500 to move into a positive zone.
- Bitcoin started a fresh increase after it tested the $28,500 support zone.
- The price is now trading above the $29,500 level and the 100 hourly simple moving average.
- There was break above a major bearish trend line with resistance near $29,800 on the hourly chart of the BTC/USD pair (data feed from Kraken).
- The pair could continue to move higher towards the key $30,600 resistance zone.
Bitcoin Price Forms Triple Bottom
Bitcoin price extended decline below the $29,500 support zone. However, the bulls were active near the main $28,500 support zone.
A fresh base was formed near $28,600 and the price started a fresh increase. There was a clear move above the $29,200 and $29,500 resistance levels. The price surpassed the 50% Fib retracement level of the downward move from the $30,630 swing high to $28,635 low.
Besides, there was break above a major bearish trend line with resistance near $29,800 on the hourly chart of the BTC/USD pair. Bitcoin price is now trading above the $29,500 level and the 100 hourly simple moving average.
Source: BTCUSD on TradingView.com
An immediate resistance on the upside is near the $30,160 level. It is near the 76.4% Fib retracement level of the downward move from the $30,630 swing high to $28,635 low. The next major resistance is near the $30,600 level. A clear move above the $30,600 resistance level might start a steady increase. In the stated case, the price may perhaps clear the $31,200 resistance zone.
Fresh Decline in BTC?
If bitcoin fails to clear the $30,600 resistance zone, it could start another decline. An immediate support on the downside is near the $29,600 level.
The first major support is near the $29,500 level and the 100 hourly simple moving average. A downside break below the $29,500 support might send the price further lower. The main support is still near the $28,500 level, where the bulls are likely to take a strong stand.
Hourly MACD – The MACD is now gaining pace in the bullish zone.
Hourly RSI (Relative Strength Index) – The RSI for BTC/USD is now well above the 50 level.
Major Support Levels – $29,500, followed by $28,500.
Major Resistance Levels – $30,150, $30,500 and $30,600.
Bitcoin Rejects Downside At $29k, Here’s Why This Is Good
Today’s Bitcoin price analysis is positive, as a dip to $29,000 was met with solid support and rejection, indicating that additional downside is unlikely. As a result, BTC/USD is expected to rise further in the next days, most likely above the $31,000 resistance level.
Naturally, the psychological price of $30,000 for Bitcoin implies a solid purchase zone. We’ll look at why Bitcoin’s recent consolidation around $30,000 is a promising sign of future price increases.
Bitcoin Fall 57% From ATH
Bitcoin prices have fallen from a high of $69,600 to a current level of $29,350. The entire cryptocurrency market was destroyed by this 57 percent price decrease. As a result of the decreasing prices, a snowball effect began to occur, causing other crypto projects to be hit and sink even more.
The price range of $30,000 for Bitcoin is critical. Many large corporations bought Bitcoins at that price. Furthermore, as shown in Figure 2, Bitcoin prices historically consolidated around those precise positions before beginning an advance.
BTC/USD 1-day chart showing the consolidation area. Source: TradingView
For more than a week, bitcoin has been trading sideways, with the $31,000 mark acting as solid resistance. Meanwhile, significant support has been established at $29,000, signaling a clear consolidation region that must be overcome before the market can continue to develop.
The previous high was set at the same level as the previous low, signaling market hesitation. As a result, the recent $29,000 test could lead to another retest of the resistance.
Related Reading | Eight Consecutive Red Closes: Is Bitcoin Headed For A Recovery?
Will Consolidation occur?
If BTC prices happen to drop below $28,000 again, the next support area would be around $20,000. However, it is more likely that prices will increase from this Bitcoin price consolidation phase. The first target is around $35,000, or a 17% increase in prices. After that, prices should target the next psychological price of $40,000. From there, we might see a slight adjustment lower, but in the long term, prices should break higher. This would mark the official start of the uptrend.
In order for bitcoin’s price to establish a foothold at the bottom in the short term, according to Josh Olszewicz, head of research at investment management Valkyrie, volatility must reduce.
“We can look at things like the 200-week moving average, which is around $22,000. We can look at realized price, which is the average price of coins that have moved on-chain, which is around $23,800,” Olszewicz said on CoinDesk TV’s “First Mover” program. “This [movement to hit bottom] will probably take at least all of Q3, perhaps Q4 as well, if it were to happen this year.”
Other variables, like as the US Federal Reserve boosting interest rates, are also influencing bitcoin’s market performance, according to Olszewicz.
He speculated that institutional investors may be in the forefront of the downturn. The average size of on-chain transactions, according to Olszewicz, is in the tens of thousands of BTC.
Nonetheless, according to Olszewicz, ordinary traders continue to influence market movement more than institutional investors. Those learning about cryptocurrencies are now jumping in during this bear market to “test the waters” and “see if they can survive,” according to him.
Suggested Reading | Ripple (XRP) Plunges To $0.43 With Bears In Full Swing
Featured image from iStock photo, chart from TradingView.com
Investors May Expect Downside For Bitcoin And Ethereum Market For The Next 3 Months
The crypto markets have accepted the depegging of UST and the subsequent downward spiral of LUNA, both of which impacted the price of Bitcoin and the entire digital asset spectrum. According to a recent report by the Glassnode team, the Bitcoin market has been trading lower for eight weeks, making it the ‘longest continuous series of red weekly candles in history.’
Even Ethereum, the most popular altcoin, painted a similar picture. Bearish fluctuations damage returns and profit margins directly or indirectly.
To make matters worse, derivative markets forecast shows more declines in the coming three to six months.
Derivative Markets Hint At More Pain For Bitcoin
According to derivative markets, the prognosis for the next three to six months remains fearful of further fall. On-chain, the report stated that blockspace demand for Ethereum and Bitcoin has dropped to multi-year lows, and the rate of ETH burning via EIP1559 has reached an all-time low.
Glassnode calculated that the demand side will continue to face headwinds due to poor price performance, uncertain derivatives pricing, and extremely low demand for block-space on both Bitcoin and Ethereum.
The report explains:
Looking on-chain, we can see that both Ethereum and Bitcoin blockspace demand has fallen to multi-year lows, and the rate of burning of ETH via EIP1559 is now at an all-time-low.
Coupling poor price performance, fearful derivatives pricing, and exceedingly lacklustre demand for block-space on both Bitcoin and Ethereum, we can deduce that the demand side is likely to continue seeing headwinds.
Both Bitcoin and Ethereum’s price performance over the last 12 months has been disappointing. Long-term CAGR rates for Bitcoin and Ethereum have been impacted as a result of this.
BTC, the largest cryptocurrency, moved in a roughly 4-year bull/bear cycle, which was frequently accompanied with halving events. When looking at long-term returns, the CAGR has dropped from almost 200 percent in 2015 to less than 50 percent as of this writing.
Related Reading | New Data Shows China Still Controls 21% Of The Global Bitcoin Mining Hashrate
Furthermore, Bitcoin had a negative 30% return over the short term, implying that it corrected by 1% every day on average. This negative return for Bitcoin is very similar to prior bear market cycles.
When it comes to ETH, the altcoin performed far worse than BTC. Ethereum’s monthly return profile revealed a depressing picture of -34.9 percent. Ethereum likewise appears to be seeing diminishing rewards in the long run.
Furthermore, during the previous 12 months, the 4-year CAGR for both assets has dropped from 100% to only 36% for BTC. Also, ETH is up 28 percent per year, emphasizing the severity of this bear.
To make matters worse, the derivative market warned of future market declines. Near-term uncertainty and downside risk continue to be priced into options markets, particularly over the next three to six months. In reality, during the market sell-off last week, implied volatility increased significantly.
Total crypto market cap stands at $1.2 Trillion. Source: TradingView
The Glassnode analysis concluded by stating that the present bear market has taken its toll on crypto traders and investors. Furthermore, the Glassnode team emphasized that downturn markets frequently worsen before improving. However, ‘bear markets do have a tendency of ending’ and ‘bear markets author the bull that follows,’ so there is some light at the end of the tunnel.
Related Reading | TA: Bitcoin Price Stuck In Key Range, Why Dips Might Be Limited
Featured image from iStockPhoto, Charts from Glassnode, and TradingView.com
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