27 September 2023

Hard currency: Will bitcoin emerge a winner from the global meltdown?

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Luke Fitzpatrick* predicts what could happen to cryptocurrencies with the global economy in turmoil.

Right now, the global economy is in total shock.

The Washington Post reports: “Nearly every asset class — stocks, bonds, gold, oil — came under siege, with the Dow plunging more than 1,300 points.”

On 12 March, this sent the crypto markets tumbling into panic mode and bitcoin was oversold.

In just 24 hours, $93 billion was wiped from the crypto markets, resulting in a 48 per cent plunge in bitcoins’ price.

Bitcoin bull Tim Draper says: “It will be bitcoin, not banks and governments that save the day.”

With the bitcoin halving event scheduled to take place in May, Draper believes that the price of bitcoin could reach an all-time high of $250,000 by 2022.

With the bitcoin halving event around the corner, here’s what you could expect to happen.

Extreme price volatility

Despite the recent downturn in bitcoin prices and the crypto market as a whole, Richard Ells, the CEO of Electroneum, believes that the global economy hasn’t seen anything like what is happening right now since World War II.

Ells says: “For the very short term, it would be foolish to expect anything but severe volatility in the crypto market.”

“However, once the dust settles, I’m positive that we will see it flourishing again.”

As of the time of writing, bitcoin has since had an impressive 80 per cent rebound off its price low of $3,800 to $6,206.

Ells further goes on to say: “The next bitcoin halving is right around the corner and crypto adoption has been rising all around the world in the past few months.”

“For instance, our recently launched freelance platform AnyTask has recorded more than 51,000 signups only within a week.”

Bitcoin resilience

Dan Schatt, CEO of the crypto lending platform Cred, believes that while the current global liquidity crisis has the potential to destroy some asset classes, in the short term bitcoin and cryptocurrencies will prevail.

“Bitcoin has proven to be very resilient,” says Schatt.

“It is still up 33 per cent from a year ago.”

“Why? It continues to gain favour as a store of value that will not be diluted.”

“A dollar in 1970 is worth $0.15 today due to inflation; 50 years from now, we will not see the same rate of inflation on bitcoin.”

Schatt adds: “Bitcoin could have a massive run if more investment funds are permitted to invest in the form of ETFs or other financial vehicles.”

“The floodgates will open when the regulatory environment becomes more clear for pension funds, insurance funds and endowments.”

“Especially here in Australia, the regulators will have a field day in this asset class with regards to ETFs,” says Camilla Love, Managing Director, eInvest, an active ETF provider in Australia.

“They [the regulators] are conservative, risk-averse.”

“Volatility in bitcoin is one thing but also liquidity provisions required for ETFs are another.”

“It will be a while before a bitcoin ETF is quoted on the exchange in Australia.”

Bulls to buy up bitcoin lows

Earlier this month, the price of bitcoin dropped an unprecedented 50 per cent, falling from $7,700 to $3,800 in 24 hours.

However, that price-point didn’t last for long and is now up 80 per cent.

Jeffery Liu, CEO of the crypto processing company XanPool, says: “It’s been quite heavily argued that the recent bitcoin price plunge was primarily caused by the future markets.”

“Despite recent bitcoin sell-offs, we’re still very bullish on the bitcoin price.”

“We currently see customers heavily buying, and very few customers selling.”

“This indicates that the recent price movement downwards was derivative market heavy.”

This means that when institutional investors pull out of bitcoin, bulls step in to it buy up.

Bitcoin prices could be bolstered by closed economies

With the global economy in turmoil, bitcoin prices are likely to be bolstered by closed economies.

Tim Shaler, the Chief Economist at iTrustCapital, believes: “Investment product prices are driven by investors’ demand for future returns for that particular product, which is a function of the overall economy and the possible returns from other products.”

“We believe digital currencies have many constituent markets.”

“As the threat of war between the US and Iran intensified in January 2020, bitcoin went from $7,000 to about $10,000.”

“The run-up in 2017 may have been partially caused by China’s growing effectiveness at capital controls.”

“So, bitcoin seems to be a great purchase consideration for many well-diversified portfolios.”

Bitcoin prices may not rise during the halving

Bitcoin halving is an event that takes place every four years, which halves the rates at which new bitcoins are created.

The next halving is scheduled to take place in May.

From a historical standpoint, bitcoin prices have increased due to supply and demand.

This leads to two situations:

  • The supply is high and the demand is low, which leads to a decrease in the price of the asset/product.
  • The supply is low and the demand is high, which leads to an increase in the price of the asset/product.

Many crypto traders are bullish on the upcoming May halving, however, not all are convinced.

Nikolai Udianskiy, CEO of BTCU and co-founder of Coinsbit Exchange, says: “Many people think that after halving, the price of bitcoin will increase.”

“But they all do not take into account one fact — the previous two halvings raised a stir around bitcoin.”

“During that time, the market was full of enthusiasts who were ready to invest money and take risks.”

Udianskiy adds: “Now the situation has changed a lot.”

“There is no longer a line of people who want to buy bitcoin and other cryptocurrencies, almost all investors already have similar experience and made some conclusions for themselves whether they want to continue or not.”

“Halving is not a key argument in the issue of bitcoin price growth.”

* Luke Fitzpatrick covers blockchain trends on Forbes. He tweets at @iamwormify.

This article first appeared at www.forbes.com.

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