The second quarter of 2022 has not been very good for the cryptocurrency market. Bitcoin and Ethereum prices have fallen tremendously, as the Fear and Greed Index hit an extreme low of 8. Many holders have exited the market amidst the further dip in the overall marketcap. The biggest reason for all the fear in the market has to do with the state of the economy, and it does not paint a pretty picture. Inflation has reached an all time high since the 80's at 8.6%. The Feds have also increased interest rates in the hope of curbing inflation, but this is leading to an economic slowdown that can make things worse before they get better.
The narrative now is that crypto was not able to hold up in extreme market volatility. Bitcoin was meant to be a hedge against inflation and a superior store of value when it comes to economic uncertainty. Those have not been proven with absolute proof, but that is how it was being framed. The prices have plummeted leading to massive losses. The crypto marketcap has been cut nearly in half from $2 Trillion to $1 Trillion (as of posting) and it could dip further. If looking at prices is the point of holding Bitcoin, it is not what the digital asset is for.
To think that Bitcoin is a speculative asset and made for quick and insane gains is incorrect. That would make it less of a commodity for what it is worth. Investors should not be looking at Bitcoin (and cryptocurrency in general), based on their prices. The price as determined by the market through speculation does not make for a good investment. Instead, look at Bitcoin for its value proposition. It is a multi-purpose asset that can function as a currency and technology, allowing transfer of value through an open and non-intermediary decentralized system. There is obviously more to it than that, as people are defining use cases for Bitcoin as it applies in the modern world.
The value is more important than the price. Bitcoin should be a different asset class, but it is being correlated to the tech stock market based on the analysis. When the stock market is down, Bitcoin also falls. It should be looked at the other way around because that was what Bitcoin's value should be. More recent investors and holders are treating Bitcoin as a risk asset, so they are mitigating their risk by selling the asset off. It is quite contradictory of Bitcoin being a hedge asset against any turmoil in the financial markets.
Bitcoin can be $0 or $1 million, but it is best for the market to decide which direction it should go. Looking at Bitcoin for its price, and not value, shows that there is still a lack of understanding of the fundamentals of cryptocurrency. Bitcoin's value is more important than its price. When more investors understand the value, price will increase on its own without further speculation. Understanding leads to adoption and more value, as the network grows. The total market will determine where the prices go, and not manipulation by a few big holders. When this happens, Bitcoin prices will stabilize and we will see a much higher price valuation as a result.
Disclaimer: This is not financial advice and is the author’s opinion. The information provided is for reference and educational purposes only. Please DYOR to verify information.
Photo Banner Credit: Andrea Piacquadio
