The discrepancy in its use cases is one of the main reasons for Bitcoin’s (BTC), volatility. Some analysts call it “digital Gold”, a rare and perfect store value (SoV). Others see Bitcoin as a technology project, or a type software that has a corresponding network.
The Lightning Network’s means of exchange (MoE), functionality will be evidenced by El Salvador’s legal tender adoption. Although the Layer-2 scaling solution is instantaneous and extremely cheap, it still requires on-chain transactions to access or exit this parallel network.
These narratives change over time about Bitcoin, as does BTC’s relationship to other traditional assets. There has been a sustained correlation with gold for example.
In 2020, Bitcoin vs. Gold (precious metal). Source: TradingView
Although the March 2020 crash had devastating effects on almost all asset classes, the recovery process that followed for six to seven months was nearly identical for bitcoin and gold. Curiously, however, the opposite happened in 2021. This shows an inverse correlation of the two assets.
Is Bitcoin a tech stock proxy?
Bitcoin, on the other hand, began to imitate the Hong Kong stock exchange, according to the Hang Seng Index. Tencent, Alibaba, Meituan and Meituan are among its top contributors, all of which are multi-billion-dollar Asian technology companies.
Bitcoin vs. Hang Seng Index (stocks). Source: TradingView
This shift in investors’ perspectives — from tracking gold prices to tech stocks — raises the question of whether Bitcoin will succumb the Hang Seng downward movements seen over the past 90-days. Is it logical to decouple now? Is Bitcoin still a safe haven in the face of a general correction, if so,
Evergrande Group, China’s second largest property developer, announced on Sept. 14 that it had suffered a substantial decline in sales and was forced to delay paying its debt. Analysts believe this single company could have a significant impact on the wider market as it has more than $300 billion in debt.
China’s August retail sales fell 2.5% in comparison to the previous year. Investors had expected a 7% increase. Evidently, the government’s response to the Covid-19 epidemic in 2020 had a significant impact on growth and the economy.
It is important to remember that many of the most powerful Central Banks have been implementing near zero interest rates or even negative rates since Q1 2020. There is nothing that can stop the economy from losing momentum despite multiple trillion-dollar stimulus programs.
Problem is that Bitcoin, although it may be 12 years old has not experienced a major economic crisis. Any analysis or estimate that attempts to assess Bitcoin’s credibility will not be credible.
A market crash might not have as much impact on Bitcoin.
The cryptocurrency market has an advantage over traditional markets such as stocks, bonds, commercial real estate, and stocks. These assets can be foreclosed by lenders if clients fail to pay their bills. This adds pressure as the bank or institution does not have an interest in them.
However, Bitcoin and other cryptocurrencies can not be used as collateral.
The billion-dollar Bitcoin futures liquidations at derivatives markets are simply synthetic instruments. These events will undoubtedly impact the price but, at the end, the effective BTC remains at the derivatives’ market. It only moves from the short (seller), account to the long (buyer).
The mid-term systemic risk of Bitcoin is lower than that of the traditional market until it becomes fully established in financial markets and accepted for collateral and deposits.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.