Since the start of the crypto downturn in early May, investors have been selling their tokens and rushing to purchase Bitcoin.
Investors Considering Bitcoin a Safer Option to Other Altcoins
Currently trading around USD30K, Bitcoin remains the globe’s largest crypto by market capitalization. According to TradingView, Bitcoin now makes about 47.3% of the total crypto market capitalization. It is playing a dominant role not witnessed since July 2021, when Bitcoin’s price was slightly over USD42K.
The BTC’s growing value relative to the overall crypto market capitalization is a suggestion that investors are considering it a safer bet in this period of contraction. Tylor and Cameron Winklevoss, the founders of Gemini, have named this situation the “crypto winter.”
According to Andy Edstrom, the managing director of advisory services at Swan Bitcoin, Bitcoin is probably the most volatile asset that investors have seen in history. However, the reality is that its volatility has come down in its entire life.
Developed during the 2007-2009 Financial Crisis, Bitcoin proponents originally envisioned it as a form of electronic payment that runs outside the monetary control of centralized authorities. Between its inception and now, crypto advocates have changed their thoughts and are now seeing it as a “digital gold.”
Although volatility has become one of the common characteristics of Bitcoin, data indicates that this volatility has reduced over time. Since December 2021, BTC has moved at a pace almost similar to that of stocks on the market. After the collapse of the algorithmic stablecoin TerraUSD, BTC correlation with S&P 500 stocks has dropped sharply but still remains at levels higher than any other moment in 2021.
Since its last peak reached in November 2021, Bitcoin has performed 9% worse than Meta ($FB) but held out 16% better compared to Netflix ($NFLX) within the same period. However, the performance over the last two years pastes a different picture. Its value has shot up by 233%.
Macro and Microeconomics Factors to Continue Impacting BTC
Despite the large growth over the long term, Bitcoin is still under the huge influence of the macroeconomic environment. According to Tom Dunleavy, a researcher at Messari, the current cycle of monetary tightening has kept traders sharply focused on the United States economy when thinking of short-term crypto trading.
Also, potential regulations are creating new uncertainty. As Brian T. Moynihan, the CEO of the Bank of America said, the large financial companies are heavily regulated, which hinders them from making major moves toward cryptos like Bitcoin. When more clarity is provided, the position of Bitcoin on the market is likely to change.
In his view, Mark Newton, a technical analyst with Fundstrat, the growing buyer demand and trading volume indicates that Bitcoin might have already found its near bottom level. However, monetary tightening is likely to keep investors cautious. Newton added that Bitcoin is likely to reach around USD37,000-USD39,000.
However, the job cuts reported at Robinhood, Gemini, and Coinbase, the leading crypto trading firms, might be a pointer that we are headed to a “crypto winter.”