One of the major economic impacts of COVID-19 has been people at home receiving stimulus paychecks and then investing them in cryptocurrencies. Bitcoin has grabbed the headlines, with massive fortunes and losses being made over the last few months. So, let’s take a look at Bitcoin over a larger timeframe.
Bitcoin price swings are wild
Bitcoin prices more than doubled in the first half of 2021, hitting a high just shy of $65,000 in April. However, in May, BTC fell around 35%. Since then, BTC has fallen approximately 50% from April’s highs and currently trades around $33,000.
BTCUSD Weekly Chart
Lesson number 1: If you trade Bitcoin, be prepared to endure large price swings, so use wide stops and no leverage.
Lesson number 2: Bitcoin works as an inflation hedge, but remember gold is the go-to inflation hedge. According to JP Morgan analyst, Nikolaos Panigirtzoglou ‘demand for Bitcoin is price sensitive’. Some institutional investors started getting out of Bitcoin in April. They thought Bitcoin prices were too high relative to gold’.
Its future depends on adoption
The recent dip under $30,000 came as China cracked down on crypto mining and told financial institutions not to facilitate crypto payments. In addition, governments understandably want to shield their citizens from the volatility and scam attracting nature of BTC. The UK’s FCA, for instance, has banned the sale of crypto-derivatives, citing things like extreme volatility, the prevalence of market abuse, the difficulty for retail consumers to understand cryptos, and the lack of legitimate investment needs.
In contrast, countries like El Salvador passed a law to adopt Bitcoin as legal tender. The future of Bitcoin depends on adoption. The day you can walk into a shop and buy your groceries in Bitcoin is the day that Bitcoin can enjoy some kind of sense of longer-term security.
When Bitcoin wins, alternatives to Bitcoin win too.
Bitcoin is the poster boy for cryptocurrencies and its rise catapulted other coins higher on a greater trajectory. Ethererum has roughly trebled this year and Ripple risen by a similar amount. Dogecoin, which apparently started as a joke in 2013, rose over 5000% this year.
What does this tell you?
It tells us that traditional finance has not been serving many people very well. They are hungry for change. It is easy to write this off as ‘crypto nuts’, but there is a real cry here from people. A transformation is underway accelerated by:
Intense speculation brought about by lots of spare time, and spare money has shown that desire for change expressed in BTC prices.
Of course, not all revolutions succeed, and the crypto/ De-Fi revolution needs further adoption. So, if you invest in the crypto markets, make sure you always know how much you are risking at any one time. Don’t try to be the hero that ends up potentially getting zero.