2022-05-14
So far, 2022 has not been a good year for Bitcoin. The BTC price has plummeted, especially in recent weeks. The collapse of Terra Luna has exacerbated this trend. How the No. 1 cryptocurrency could continue is shown on the basis of seven factors and indicators.
Currently, there are two views on the Bitcoin price. The first is that Bitcoin is doing relatively well despite its correction and that it should actually look much worse for the Bitcoin price. After all, we are in a phase of great macroeconomic uncertainty and rapidly rising key interest rates. Convinced Bitcoin supporters, on the other hand, might see it the other way round and argue that Bitcoin should outperform other assets much more precisely because of the uncertainty and rising inflation - the cause of rising key interest rates.
So far, at least, the latter group still seems to be in the minority. If the majority of market participants shared a similar view, the bitcoin price would not be in lethargy.
How the bitcoin price will fare in the coming months therefore depends above all on which narrative prevails among investors. In order to better understand which pulls are currently acting on the Bitcoin price and are responsible, among other things, for shaping the views described above, seven important factors are listed below that will determine how the Bitcoin price will continue in the coming months.
Bitcoin search queries, ergo people's interest in the cryptocurrency, is at its lowest level since December 2020, with queries plunging 79 per cent from the peak in May 2021. Looking at the Google chart, there is no sign of a trend reversal. The low interest is a major drag on the bitcoin price. This in turn suggests that few new investors are entering the crypto sector. Things are not looking any better for other cryptocurrencies such as Ethereum.
The hashrate, i.e. the total computing power of the Bitcoin network, seems to be completely unimpressed by the difficult market environment. It knows only one direction: north. The number of Bitcoin nodes also remains stable and is even tending to increase slightly.
It is impressive that these technical fundamentals are so robust and defy all negative factors. A circumstance that is very positive for the future viability of the Bitcoin network and thus the price.
The loss of purchasing power due to inflation is now so great that it influences the investment decisions of many people. Especially lower and middle-income earners are forced to reduce their savings and investment quota in favour of the consumption quota, ergo supermarket shopping and filling up the tank. The first to suffer are optional risk assets. This should mean: While pension contracts or bank instalments for one's own property continue to run, liquid assets with a higher risk profile are the first to be reduced.
Tech stocks and cryptocurrencies such as Bitcoin are suffering. Especially as rising key interest rates, in response to inflation, mean that assets without cash flow generally perform worse than dividend stocks, for example. If the increasing impoverishment of society continues, this will be a serious negative factor for the BTC price.
In addition to high inflation, the overall political and macroeconomic situation is also putting pressure on the financial market and thus also on Bitcoin. The supply bottlenecks caused by the Corona lockdown in China as well as the uncertainty caused by the Ukraine war, especially with regard to energy and commodity supplies, are weighing on risk assets such as Bitcoin. Especially since these factors are also drivers of inflation at the same time.
So far, there are no timely glimmers of hope at the global economic policy level. The systemic risks are still to be assessed as high and thus a rejection of Bitcoin for the majority of investors
The fact that one euro or one US dollar can buy less and less should in turn increase openness among the population to alternatives. In the meantime, inflation has become a regular topic. New fears are emerging among the population. These in turn can serve as a catalyst for gold, but also for Bitcoin. Even cautious, conservative investors find it increasingly difficult to remain calm in the face of high inflation. This forced actionism can be channelled into freeing up funds for Bitcoin. So far, at least, this effect has not really taken hold. The current impression is more one of sitting out and doing nothing.
One of the biggest hindrances for Bitcoin in recent months has been the regulatory debate. In the EU in particular, this has taken on absurd characteristics. At times, there was even talk of a Bitcoin ban for European service providers. In the meantime, however, it has become clear: neither in the EU nor in the USA will there be such a massive restriction. Instead, the requirements for crypto service providers will be further increased and privacy significantly reduced. This is certainly a development that can be criticised in parts, but it is not a bad sign for the Bitcoin price.
The new regulatory security offers banks, asset managers and other financial service providers the opportunity to now also invest in the crypto sector. The burdensome regulatory debate should thus have found its bottom, so that positive effects can be expected in the coming months.
Where asset class prices are heading is decided primarily by the big players on Wall Street. The relevant institutions are signalling more and more clearly that crypto is part of their long-term strategy. It takes a long time for them to start moving, but once the processes are set in motion, they are difficult to stop. A concrete example would be the acceptance of Bitcoin-backed loans at the investment bank Goldman Sachs. Another example is the willingness of the world's third-largest asset manager, Fidelity, to open its pension fund to Bitcoin. Americans who would like to fund their company-sponsored pensions with Bitcoin in the future now have the opportunity to do so. This is exactly where the big levers are. Such effects could only lead to significant inflows of funds in the coming months. Smaller, more regional institutions such as Commerzbank or N26 are also providing important bitcoin support with their latest crypto-friendly announcements.
Correspondingly, the chances of a spot Bitcoin ETF are steadily increasing. So far, there are only Bitcoin ETFs in the US that are based on futures. However, these are more like an unnecessarily complicated makeshift construction that can only be recommended with great reservations. Even if not ETFs, the selection of highly regulated ETPs or ETNs is increasing significantly, especially in Europe. Providers such as 21shares, VanEck, Vontobel, ETC Group, etc. are providing more and more low-cost bitcoin securitisations and making it possible for even "token-muffle" people to hold bitcoin in their securities accounts.
With the exception of the Terra Luna shock, it is currently mainly external factors that are putting Bitcoin under strong pressure. That is to say: There are few reasons within the crypto and Bitcoin ecosystem that explain the poor performance. Instead, topics such as key interest rate hikes, the consequences of inflation and political uncertainty dominate the investment behaviour of (potential) Bitcoin investors.
Especially the consequences of stagflation or even recession, which are a realistic scenario given the difficult environment, can overshadow the actually positive indicators. Bitcoin will have to wait for the time being; a timely and, above all, sustainable countermovement is at least not foreseeable. Nevertheless, the chances of a stronger decoupling also increase with time. This applies less to altcoins than to Bitcoin.
Should the original Bitcoin narrative as a fiat alternative and apolitical store of value with built-in inflation protection gain more and more popularity among investors, then the mood may turn in Bitcoin's favour. When and whether this trend reversal will happen, however, is hard to predict. Of course, this statement, as well as the entire analysis, does not include any chart-technical assessment. These remain unconsidered.
