Odaily Frontline | The "Patience" Game: Bitcoin Amid Economic Uncertainty

This article comes fromCointelegraph, Original Author: SHIRAZ JAGATI

Odaily Translator |

Odaily Translator |

As rumors of a promised price breakout failed to materialize over the past few months, Bitcoin’s price recently surged again to the crucial psychological level of $12,000, only to fall below it once again.

However, this development has also contributed to a considerable increase in the total market capitalization of the crypto market, reaching $386.4 billion, a level only reached in 2018. Still, there are a number of factors, such as poor investor perception and a lack of regulatory direction, that seem to be holding back the market from exuberant, as many experts had previously envisaged.

Ariel Zetlin-Jones, associate professor of economics at Carnegie Mellon University's Tepper School of Business, expressed his view on the matter that the main headwind to demand for cryptocurrencies remains COVID-19 , especially as more and more people begin to face economic uncertainty. He further added that in times of uncertainty, it is only natural that few retail investors would be willing to invest their life savings in a highly volatile asset class like Bitcoin.

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about the dollar

The U.S. dollar has remained strong so far amid the COVID-19 pandemic, partly because it is the world’s reserve currency, and as long as countries continue to view the U.S. as a global economic powerhouse, the dollar’s ​​currency value will continue to remain strong, regardless of recent stimulus packages how.

However, as far as the recent performance of the US dollar is concerned, there have also been some small episodes. First, the US dollar index is currently at 93.2, down nearly 10% from its peak in March. In addition, since the U.S. dollar is a global reserve currency, the greenback tends to appreciate during economic downturns, complicating the assessment of the greenback's performance during such periods.

Additionally, rising social tensions coupled with the constant printing of dollars are creating conditions that could create a hyperinflationary bubble for the foreseeable future. The situation has forced some major investors, such as Berkshire Hathaway CEO Warren Buffett, to trim the company's bank holdings and invest heavily in stable stores of value such as gold.

"The U.S. is not the only country with a massive stimulus package in 2020. Also, in times of crisis, global demand for dollars tends to soar. These two factors give the U.S. a lot of leeway to trade the dollar without immediately Increased supply in the face of depreciation. However, we are starting to see some signs that inflation is a risk. Of course, the massive stimulus starts with inflation of asset prices, including stocks and debt. Just last week, the U.S. July The CPI posted its highest monthly growth rate since 1991."

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The strong performance of the crypto market is astonishing

Many naysayers have repeatedly pointed out that BTC has failed to exponentially soar and reach new all-time highs despite the ripe economic conditions. However, the overall cryptocurrency market appears to be having a stellar year.

For example, the price of ETH has quadrupled, from $105 to $440 since hitting a relative low earlier this March. Likewise, cryptocurrencies like BTC, XRP, and DASH are up 72%, 50%, and 124% respectively, while many other smaller market-cap cryptocurrencies, especially in the DeFi space, are also seeing frequent triple-digit gains.

According to Tabar, the strength of the crypto market can be measured by some family offices starting to include BTC in their portfolios. Not only that, but certain neo-banks such as Revolute and low-barrier investment app Robinhood are also making crypto more accessible. This suggests that the next generation of young investors may ultimately help drive adoption of such assets. Compared to traditional commodities, Taylor noted that crypto is outpacing most precious metals like silver, which is up about 54% year-to-date:

“Other precious metals have generally returned less than 40%, especially if there is an industrial use. I suspect that the public’s attention remains focused on the performance of the stocks and bonds that make up their retirement portfolios.”

Additionally, Bitcoin has outperformed many fiat currencies compared to oil, which has dropped due to negative economic growth due to the ongoing COVID-19 pandemic. According to statistics, so far this year, oil prices have fallen by 32%. Also, compared to the S&P 500 (up 5.8%), Bitcoin has returned about 71.2% year-to-date. Peter Goodrich, tax manager of Prager Metis accounting firm in the United States, told Cointelegraph:

Zetlin-Jones also noted that Bitcoin is appreciating against the U.S. dollar, averaging nearly 0.3% per day over the past 90 days compared to May 2020, beating the S&P 500's 0.05% daily gain. However, Denis Vinokourov, head of research at digital asset exchange and brokerage firm Bequant, believes that since gold doesn't really compete directly with oil, neither should bitcoin be directly correlated with traditional commodities: That’s where its strengths lie, comparing bitcoin to other markets is like comparing apples to oranges.”

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The future of the crypto economy

While it's too early to tell, Taylor believes that with each month, expectations for inflation will continue to increase, leading many investors to look for inflation-resistant commodities, such as top digital assets. "I personally think we're in the early stages of a bull market that's actually been pretty smooth," he said. It's also worth noting that the last major crypto bull market started in mid-2015 and has built up It broke out in the second half of 2017, which shows that it is unrealistic to skyrocket overnight.

Finally, despite growing cryptocurrency adoption, the masses still face many challenges in owning cryptocurrencies. For example, opening a digital wallet, or even a crypto trading account, is still not as easy as many imagine. Mike Onghai, serial entrepreneur and seed investor at Coinbase and TZero, told Cointelegraph:

“If you look at history, it took about 20 years for mobile web browsing to become as easy as it is now. It took years to get from Netscape to today’s web browsing. It’s going to take some time before it’s easy to own crypto… It’s early days for digital assets, it feels like 1995 in the web browser era (after Netscape crashed).”

Vinokourov shared a similar sentiment, arguing that most people tend to forget that Bitcoin and other crypto assets are still relatively young. Not only that, although Bitcoin and other digital assets have shown their value in times of geopolitical and economic uncertainty, most people still consider these assets to be riskier: