But, JP Morgan analysts said Bitcoin was a hedge against inflation! Steve Wozniak called BTC “Mathematically pure” and Twitter bros promised us it would be above $100k by now, what happened? You know when you download Dark Souls and within minutes you face the first boss fight and realize “well, damn! I’m not up for this one”. In this case, Bitcoin faced its first serious challenge this week and the results were disappointing. Unfortunately, we witnessed yet another Bitcoin crash on Thursday when Russia finally invaded Ukraine. Which brings us to a fundamental question, is Bitcoin a store of value, a hedge against inflation, a haven asset? Or is it a risk-on asset? The latest Bitcoin crash shattered BTC’s libertarian-warrior image as a fiat killer or a gold alternative. A statement we had previously discussed. However, that doesn’t mean cryptocurrencies are done for good.
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Bitcoin Crash (Again)
BTC is down almost 13% since last week and trading below $36,000 (at the time of writing this article). Soon after the Russian invasion on Ukraine, Bitcoin price fell 8% while the total crypto market cap tanked 7.8% in the meantime.
Subsequently, the crypto market saw $242 million in liquidations within hours while BTC and ETH traders took the biggest hit. With that, Bitcoin crash had $64.6 million in liquidations while Ethereum and Solana reached $54.4 million and $6.09 million respectively. Obviously, the predominant majority of the liquidated traders held long positions which was audacious to say the least.
Similarly, almost all equity markets suffered in the same manner while the plunges maintained an average of less than 5%.
On the other hand, gold, oil, base metals, agriculture commodities and currency market safe havens like the U.S. dollar and the Japanese all had strong rallies across the board. In fact, Oil reached a new record gold is pretty much looking to do the same.
The $30k Support
At this point, the investor sentiment indicates a lack of faith in crypto as a haven asset or a solid store of value. Unlike what has been advertised, Bitcoin failed in the flight to safety event while gold went up. Furthermore, the financial markets are more volatile than ever not just because of Ukraine. The US inflation data, the Chinese real-estate collapse, the energy crisis all around the world and supply shortage issues are weighing heavy on equity markets. Hence, it is fair to say that further instability and turmoil is to come. In such case, the crypto market is set on a predictable bearish path unless investors feel a lot more confident about cryptocurrencies.
Let’s face it, the majority of institutional investors joined the crypto market in 2021. Tesla for example, purchased $1.5 billion in BTC in January with an estimated value of $33,000 per Bitcoin. This purchase alone caused a historical rally for the crypto market that encourage other institutions to chip in. Despite the crypto ban in China, Bitcoin did not fall below the key support level at $30,000 in the summer of 2021.
Yet again, here we are at another point in history when BTC is standing right on the edge of losing the crucial $30k support. If, Bitcoin falls below $30,000, the loss of capital will be devastating institutions which could then result in a massive sell-off. Sadly, this is no time to take risks as the future hold severe uncertainty for investors.
Of course, this risk-on asset status for Bitcoin can turn on a dime. But what it requires is a compelling reason for investors to sell their gold and other haven assets. Thus, it is impossible at this point to predict what could cause this turnaround.
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