Will Bitcoin Hit $10k? The past six months have upended many predictions on market movements. Growth stocks are down, particularly in the tech sector, and the market’s biggest winners are in the oil and defense industries. Some of the best-performing stocks of 2022 include:
- Halliburton Company – up 50 percent year-to-date
- Marathon Oil Corporation – up 60 percent year-to-date
- Occidental Petroleum Corporation – up 106 percent year-to-date
Several factors contributed to the changing fortunes of big tech and big oil. Inflation, rising interest rates, and the Russian invasion of Ukraine top the list. The market’s response to these developments follows historical patterns, and few experienced analysts are surprised by the impact of these new economic conditions on energy and technology.
What has come as a surprise is the sudden drop in Bitcoin price, along with declines in the value of other cryptocurrencies. Until now, Bitcoin was thought to be disconnected from the wider market – or at least a reliable hedge against inflation and general economic uncertainty.
In theory, current events should have proven that the basic premise of Bitcoin is sound. In a time when economic sanctions are a hot topic, and entire nations cannot use traditional financial tools, Bitcoin should be a perfect solution.
Instead, Bitcoin is down more than 35 percent year-to-date and 50 percent since its November 2021 highs of $60,000+.
What happened? And will Bitcoin hit $10,000, or will Bitcoin recover?
What Did Crypto Analysts Get Wrong About Bitcoin?
Bitcoin and other cryptocurrencies are a relatively new addition to the global economy. Bitcoin was the first of its kind when it launched in 2009, and more than 20,000 cryptocurrencies have been introduced in the decade or so since.
The vast majority have almost no value, trading at fractions of cents per coin. However, Bitcoin astonished the world when it hit almost $20,000 in 2018, then went on to peak near $70,000 in 2021.
Companies like Block, Coinbase, and Tesla purchased and promoted Bitcoin, and Cathie Wood of ARK Invest expressed certainty that Bitcoin will play an important role in the world’s economic future. These expectations appeared to be proven correct when El Salvador adopted Bitcoin as legal tender in September 2021, paving the way for other nations to follow.
A few assumptions drove retail and institutional investors to put their money into crypto. For example, because cryptocurrencies are decentralized and not managed by a government entity, the theory was that Bitcoin price wouldn’t be impacted by market conditions. Whether stocks were up or down, Bitcoin investors believed that Bitcoin would move independently, so they bought in as a hedge against volatility.
As of August 2021, institutional investors held more than $70 billion in Bitcoin, and most had plans to add to their positions. Unfortunately, it appears that the underlying strategy of holding Bitcoin as a hedge is wrong. Some crypto experts suggest that from a pricing perspective, institutional investors, including hedge funds, are the reason for the change in Bitcoin’s behavior.
Originally, cryptocurrency was considered an alternative to the centralized financial system, and those who bought Bitcoin also bought into that philosophy. Now institutional investors own massive amounts of cryptocurrency, and they aren’t doing it for the purpose of transforming the global financial system. They simply want to deliver profits for their investors, so they are buying and selling Bitcoin as they would any other tech asset.
As inflation goes up and the stock market goes down, Bitcoin is going down as well. For the moment, it appears that Bitcoin is correlated to traditional stock prices. If that pattern holds over time, proving that cryptocurrencies can’t be as independent as originally hoped, the entire premise of cryptocurrency as a hedge against inflation, high interest rates, and recession will have to be reconsidered.
Why Did Bitcoin Go Down?
Reports of inflation hitting 40-year highs prompted the US Federal Reserve to announce a plan to raise interest rates. Meanwhile, Russia’s invasion of Ukraine disrupted the global energy supply, which created a ripple effect in every facet of the world economy.
Gas prices are up, which necessarily means fewer discretionary purchases – and when consumers do make purchases, they are paying more. After all, every item on a store shelf requires some sort of transportation, and trucks, cargo ships, and airplanes all require fuel.
The general consensus is that recession is looming. In preparation, investors have dumped their riskier growth stocks in favor of more reliable options. However, they haven’t put their money into Bitcoin – and in fact, they are selling their crypto as quickly as possible, indicating that Bitcoin is perceived as a high-risk investment rather than a hedge.
In other words, investors are handling Bitcoin as they would a tech stock, so Bitcoin’s volatility is moving in sync with the tech-heavy Nasdaq. The correlation isn’t exact or one-to-one, but it is closer to that one-to-one score than ever before. An analyst for Arcane research calculated the exact figure since the start of 2022 and determined that Bitcoin is moving with the Nasdaq at a correlation of 0.82.
More importantly, the gap in Bitcoin’s correlation with gold is growing wider, which indicates that the cryptocurrency is no longer considered a hedge against market declines. The analyst who completed this research said, “It delegitimizes the argument that Bitcoin is like gold. Evidence points in favor of Bitcoin just being a risk asset.”
Perhaps Bitcoin isn’t living up to its original promise because average consumers aren’t comfortable enough with the concept of using crypto in everyday transactions. Perhaps prices are simply too volatile for sanctioned Russian oligarchs to consider converting their assets to crypto.
The question is whether this spells the end of the crypto experiment or it simply demonstrates that Bitcoin is still too early in its development to deliver on lofty global objectives quite yet.
Does all of this mean investors should avoid Bitcoin? Is Bitcoin going to lose more of its value? Will Bitcoin hit $10k this year, or will it recover and reach new heights?
Will Bitcoin Recover?
Detractors point to the recent collapse of TerraUSD (UST), the largest algorithmic stablecoin, as an example of the dangers of crypto. They suggest Bitcoin and other cryptocurrencies are likely to follow suit as large investors exit the asset, and they insist that Bitcoin prices could drop to $10k or lower.
However, those with a deep understanding of the crypto market are confident that one has nothing to do with the other.
Instead, the most established, secure, and conservative blockchains, including Bitcoin, will benefit from these events over time. They expect Bitcoin to gain market share as weaker cryptocurrencies bow out, and as Bitcoin matures, they expect that it will return to its roots as an alternative currency rather than a speculative tech asset for large investors.
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