Over the past ten years, a culture of collective excitement mixed with obsession has developed around Bitcoin. It’s difficult to forecast if this cryptocurrency will replace gold as the world’s reserve currency or whether it will become a commonly used store of value. Some investors are hesitant due to the thrill of financial success or the fear of failure, while others are drawn to the potential for enormous returns from Bitcoin investments.
Bitcoin is undoubtedly a ground-breaking financial technology, and in 2022 it will probably be a lot less dangerous than in 2012. After El Salvador makes it a legal tender in 2021, other nations might try to imitate this decision to spur innovation. Others, however, might outright forbid it to protect their fiat currencies or pave the way for a central bank digital currency.
In the current geopolitical environment, Bitcoin has assumed a central role, and 2022 appears to be the year of widespread acceptance. Investors are now unsure if Bitcoin is a wise investment due to this.
An ARK Invest Analyst Outlines 3 Reasons Why The Bitcoin Bottom Might Be In
The price of bitcoin has been fluctuating for a long time between the significant ranges of $18,000 and $24,000.
Now, Will Clemente, co-founder of Reflexivity Research, and Yassine Elmandjra, a cryptocurrency analyst at ARK Invest, list a few reasons why the bottom may already be in.
1. Strong Holder Behaviour
It appears that the cost basis for short-term holders of Bitcoin has crossed below the cost basis for long-term holders. The analysts claim that because this has only occurred three times before, “this cross traditionally marks a cyclical bottom.”
The above shows an assertive holder battling the dismal macro environment, despite the cryptocurrency trading between its investor cost base at about $19,000 and the 200 weekly moving average at $23,500. A “resolution to either side will have a substantial impact on bitcoin’s short-to mid-term prospects,” according to Elmandjra.
2. Miner Capitulation
However, it’s essential to remember that according to recent research by the well-known cryptocurrency analytics platform Glassnode, the current price of BTC is perilously near its cost of manufacturing, which stands at about $18,300 (at the time of the report). According to the business, this “signals a potential threshold for acute income stress in the mining industry” and could be problematic for miners.
The ARK Invest study, which indicated a 55.7% decline in the 1-year BTC miner’s revenue, supports the above.
3. Long-Term Supple at Its All-Time High
The analyst also mentioned the long-term holder supply as a crucial metric. At its peak, it had 13.7 million BTC, or 71.5% of the coin’s total supply. This, along with the fact that the number of currency days destroyed each quarter has fallen to a 12-year low, is quite encouraging.
According to , “The fact that the BTC supply on exchanges is at its lowest level since November 2018 is another factor to take into account. Exchange outflows increase as investors show long-term conviction in the asset “.
stated: “As signs of a recession are becoming clearer, the dollar seems to have entered a parabolic rise, negatively impacting all risk-on assets, including Bitcoin. A strong dollar is sending major euro banks into turmoil. CDS spreads on Deutsche Bank, and Credit Suisse has not been seen since the ’08 financial crisis.”
This is another factor contributing to the growing pressure abroad on the US to halt raising interest rates. Even the UN expressed concern that a global recession may result if the Federal Reserve keeps raising interest rates.
It appears that Bitcoin could be the future of money, or at the very least a widely used store of value, as institutions are now including it in their balance sheets, and El Salvador has made it legal tender. Risk-averse investors are still unwilling to purchase Bitcoin, much less any other cryptocurrency, given the market’s extreme volatility.
Since Bitcoin is decentralized, it has a lot more sound monetary policy than any government. Since the parameters in the code determine Bitcoin’s monetary policy, Ark Invest CEO Cathie Wood refers to Bitcoin as a “rules-based monetary system.” Investors are looking for alternative assets to protect against inflation since governments are creating more money than ever due to the pandemic. Many are using Bitcoin to do this, promoting the long-term use of cryptocurrencies.
So, is Bitcoin a wise financial decision and something you should invest in? It can be if you do your research and make sensible investments. However, if investors attempt to treat Bitcoin like any other asset, they risk making a poor investment.