You can't complain about volatility lately, looking at the traditional financial markets. Both stock indexes and currencies may have seen increased volatility, not to mention the bond market.
Bitcoin to the dollar
It would seem that a dollar hitting consecutive 20-year peaks, indexes deepening the bottom of a bear market, or rampant bond yields would be an environment in which cryptocurrencies could significantly fall. For the moment, however, this has not happened. On the contrary, despite the downswing in stock markets and a more expensive dollar or higher bond yields than at least a week ago, bitcoin seems to be gaining against the USD. Can the world's largest cryptocurrency provide an alternative in these times?
Source: Conotoxia MT5, BTCUSD, H4
Bitcoin an alternative in a currency crisis?
Since the beginning of this year, the Japanese yen and the British pound have lost more than 20 percent against the U.S. dollar. The euro has lost more than 15 percent against the USD, and the New Zealand dollar more than 16 percent. We are talking about some of the world's most important currencies and a period of less than 10 months. In the long term, the losses of individual currencies seem to be even greater. From this perspective, the market is beginning to talk about a possible currency crisis, as well as new resolutions, or an increase in the chances of joint intervention against the strength of the USD.
Whether this would happen is a separate topic, but if the major currencies are losing value so significantly, the question is whether bitcoin will be able to play the role of an asset, to store the value of money over time. Additionally, Americans may have an even bigger problem than other countries. While investors from Europe or Asia were able to buy USD with their local currency and could possibly benefit from a change in the exchange rate, Americans seem that they did not have such an opportunity. U.S. investors, what they would touch this year, they could lose on. Foreign currencies against the USD weakened, the stock market fell, together with bonds and gold in USD. There seems to be no place where, owning dollars and being in the US, someone could store capital so that it is not devoured by inflation (except for short positions in the aforementioned markets).
While this is a far-fetched thesis, it is worth recalling that bitcoin could have been a response to the ineptitude of government, supervision and the central bank, leading the US economy to collapse through the real estate crisis. Today, citizens' wealth may also be at risk. Inflation, high interest rates (but not so high that they yield interest over inflation), an economic slowdown or recession, or poor prospects for recovery. Perhaps when the situation is already very bad in the markets and in the economy (according to forecasts, this could be the case in 2023), bitcoin could attract capital to store it over time, because here the rules about money creation are very clear and known in advance for decades ahead, unlike the actions of central banks.
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Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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