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Why Bitcoin Is Not a Safe Haven Asset But a Risk Asset

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Between 2020 and now, financial markets experts have attributed the characteristics of gold to Bitcoin and gone on to describe the digital asset as the new safe haven, or digital gold.

In fact, JPMorgan Global Market Strategist Nikolaos Panigirtzoglou, in a note to clients on Oct.6, 2021, said “Bitcoin’s allure as an inflation hedge” was the reason for growing investor interest in the unregulated digital asset.

An inflation hedge is an investment that will hold its value even when prices go up or the currency’s worth goes down. It means investors were drawn to Bitcoin because of its attractiveness as a store of value, just like the world’s most reliable safe-haven asset, gold.

But the Russia-Ukraine war has shown Bitcoin, the world’s most dominant cryptocurrency, to be a risk asset. A risk asset, as the name implies, is any asset that has a significant degree of volatility or risk.

Just like other risk assets like equities, real estate or currencies, Bitcoin plunged with the Russian invasion of Ukraine and has remained largely subdued even when gold rose to an 18-month high last week.

The Reason for This Bitcoin Misconception

It was the same in January 2020, when nations started announcing Covid-19 restrictions to halt the spread of the pandemic, the value of Bitcoin declined with other risk assets as shown in the chart below, whereas the value of gold surged as shown in the second chart.

Here is where it gets interesting. Bitcoin at the time was trading well under $10,000 per coin but started gaining momentum once investors, largely retail investors, started factoring in Bitcoin halving. Bitcoin halving is a process in which the reward of Bitcoin miners is halved after building additional 210,000 blocks. Therefore, since miners’ reward is the only means by which Bitcoin is available for purchase, the value of Bitcoin rises thanks to the decline in supply.

It was Bitcoin Halving that occurred in May 2020 during the peak of Covid-19 that bolstered the value of Bitcoin above $22,000 a coin and subsequently attracted institutional investors already struggling to find the right investment at a period when all economies were closed. The size of their investments coupled with the scarcity created by Bitcoin Halving was what led to the Gap, circled in the first chart (institutional investors entry).

However, because this happened at a period of high global uncertainty and risk, and coincidentally during COVID-19, experts with little or zero knowledge of Bitcoin technology started pushing safe haven narratives.

Here is Why Bitcoin is Not a Safe Haven Asset or Digital Gold

A safe haven asset is that asset that can at least retain its value or appreciate during financial markets downturns. Please note that while it does not guarantee positive returns, it maintains its value in a crisis.

In fact, from the second chart, Gold took off immediately COVID-19 broke out in Wuhan, China in November 2019 and rose above $2067 per ounce by June 2020 while Bitcoin continued to struggle until after halving as seen in the first chart.

As clearly shown in the two charts, the value of Gold started declining in June 2020 when tech stocks started thriving on growing remote workspace and gradual adaption to the new normal. Bitcoin, NASDAQ, Standard and Poor 500, and other risk assets were rising simultaneously as shown in Chart 1, 3, and 4. Again, a critical look at the last few weeks of the three charts revealed that Bitcoin, NASDAQ and Standard and Poor 500 have been on the decline in response to the Federal Reserve projected rates hike and the Russia-Ukraine war. Indicating that despite Bitcoin’s huge returns when compared to traditional assets, it mirrored the characteristics of risk assets than it has been established.

Also, since Russia invaded Ukraine, Bitcoin has failed to replicate the 2020/21 run even with people projecting that Russia will turn to cryptocurrency to avoid the impact of sanctions. The reason is not far-fetched, this is not a halving year. The next Bitcoin Halving is in 2024. Suggesting that Bitcoin might be at the beginning of a bearish period despite global happenings.

It was based on these modalities that I established how Bitcoin could hit $50,000 a coin as early as 2020. Here is an excerpt of the article titled, Bitcoin Halving: Nigeria, Others Get Ready For Uncertain Bitcoin Future, written on May 11, 2020, “Unlike the Central Banks, Bitcoin is not manually regulated rather its algorithm has been engineered to gradually reduce the number of Bitcoins that can be created over time.

“Therefore, while the supply of Bitcoin will continue to reduce, its demand will remain constant. A process that if eventually worked could see the digital currency hitting $50,000 a coin or even $1 million as more money would be chasing fewer coins.”

Bitcoin thrives on this methodology and not the assumption that it is a store of value or inflation hedge.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Bitcoin

Bitcoin Eyes Gains with Seasonal July Boost After Slump

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After several months of declines and rangebound trading, Bitcoin (BTC) bulls have reason to cheer as the largest cryptocurrency is poised for a potential seasonal upswing this July.

Historical data and recent market movements suggest a positive outlook for Bitcoin, following a period marked by billions in sales, upcoming selling pressure, and outflows from exchange-traded funds (ETFs).

Since April, Bitcoin has been trading within a narrow band of $59,000 to $74,000, weighed down by market dynamics and peak negative sentiment among retail traders.

However, July has historically been a bullish month for Bitcoin, and early indicators show a possible reversal of recent trends.

On the first day of July, U.S.-listed ETFs recorded nearly $130 million in inflows, their highest since early June.

This influx comes after a significant $900 million outflow in the previous month, signaling renewed investor confidence in the cryptocurrency.

“Bitcoin has a median return of 9.6% in July and tends to bounce back strongly, especially after a negative June,” said Singapore-based QCP Capital in a recent Telegram broadcast.

“Our options desk saw flows positioning for an upside move last Friday into the month-end, possibly in anticipation of the ETH spot ETF launch. Many signs point to a bullish July.”

Historical data supports this optimistic outlook. Over the past decade, Bitcoin has gained an average of more than 11% in July, with positive returns in seven out of the ten months.

A 2023 report by crypto fund Matrixport highlighted significant July returns in recent years, with gains of around 27% in 2019, 20% in 2020, and 24% in 2021.

Seasonality, the tendency of assets to experience regular and predictable changes that recur annually, appears to be a driving factor.

These seasonal cycles can be influenced by various factors, such as profit-taking around tax season in April and May, leading to drawdowns, and the generally bullish “Santa Claus” rally in December, which reflects increased demand.

As the cryptocurrency market enters July, Bitcoin traders and investors are optimistic about a potential rally. While the market remains cautious of underlying pressures, the historical trends and recent inflows suggest a favorable environment for Bitcoin’s resurgence.

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Bitcoin Slumps 13% in Q2, Prompting Investor Concerns

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As the second quarter of 2024 concludes, cryptocurrency investors are left contemplating the future of Bitcoin after the leading digital currency retreated significantly from its all-time highs.

Bitcoin, which had previously soared to a record $73,798 in mid-March, has seen a sharp decline, closing the quarter at approximately $61,000.

This represents a 13% drop since March, a stark contrast to the substantial gains of 67% and 57% in the previous two quarters, respectively.

The downturn has spurred concerns among investors about the broader implications for risk appetite in financial markets, particularly as the prospect of higher-for-longer interest rates looms.

This sentiment was echoed by Austin Reid, Global Head of Revenue and Business at FalconX, who noted, “A lot of people in the market have questions that are mostly anchored on concerns from a macro perspective. I think there’s just some short-term uncertainty being reflected within the crypto market, as we’re seeing in some other asset classes too.”

One of the clearest indicators of waning interest in Bitcoin is the significant slowdown in demand for U.S. exchange-traded funds (ETFs) that hold the cryptocurrency. These funds, approved by the Securities and Exchange Commission in January, saw a flood of interest initially.

However, the second quarter saw inflows of just $2.6 billion into Bitcoin funds, a sharp decline from the $13 billion recorded in the first quarter, according to data from CoinShares.

“There was a lot of euphoria around the release of the ETFs, and then there was a natural price correction after the rally,” said Matthew O’Neill, Co-Director of Research at Financial Technology Partners.

He explained that the ETFs initially attracted professional investors who wanted Bitcoin exposure but preferred to do so through institutional means.

The reduced inflows into Bitcoin ETFs may reflect a broader hesitation among investors to re-enter the market amid current uncertainties. For those who haven’t yet bought into the ETFs, O’Neill suggests they might be waiting for the next upward price move before committing.

Despite the current downturn, the longer-term outlook for Bitcoin remains a topic of debate. While some analysts see the recent price correction as a temporary setback in an overall bullish trend, others warn that the cryptocurrency market could face more significant challenges ahead, particularly if macroeconomic conditions remain unstable.

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Bitcoin Slumps to One-Month Low as Crypto Market Loses Steam

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The cryptocurrency market is facing a turbulent period, marked by significant declines and waning investor confidence.

Bitcoin, the leading digital asset, has dropped to a one-month low, trading at approximately $62,275 as of Monday morning in London.

This decline is part of a broader downturn in the crypto market, which has seen its second-worst weekly performance of 2024.

The overall gauge of the largest 100 digital assets fell by about 5% over the past week, according to data compiled by Bloomberg.

This represents the worst decline since April and highlights the growing concerns among investors regarding the future of digital currencies.

A key factor contributing to this downturn is the cooling demand for Bitcoin exchange-traded funds (ETFs).

Over the past six days, U.S. Bitcoin ETFs have experienced a consistent outflow of funds, undermining the confidence of investors who were hoping for a steady influx of capital into these investment vehicles.

This has compounded the already existing uncertainties surrounding the cryptocurrency market.

Adding to the market’s woes is the prevailing uncertainty over the Federal Reserve’s monetary policy.

Speculation about the Fed’s ability to cut interest rates from their current two-decade high has created a cloud of doubt over the entire financial market, including cryptocurrencies.

Analysts suggest that this uncertainty is dampening broader risk appetite, with investors becoming increasingly cautious about their investments in volatile assets like Bitcoin.

David Lawant, the head of research at FalconX, noted that the current crypto market dynamic is “characterized by low volatility, soft volumes, and order books getting unbalanced when prices start to move to the edges of their range.”

This imbalance has made the market more susceptible to sharp declines, as seen in the recent slump.

The declines in other major cryptocurrencies are also noteworthy. Ether and Solana have experienced their longest streaks of weekly declines since last year and 2022, respectively.

This comes despite preparations by fund companies to launch the first U.S. ETFs that invest directly in Ether, the second-ranked crypto asset. Solana, once a favorite among digital-asset hedge funds, has also seen significant drops.

Bitcoin, which hit a record high of $73,798 in March, is now trailing behind traditional assets such as stocks, bonds, and gold this quarter.

Analysts are now focusing on the 200-day moving average, currently at around $57,500, as a potential zone of support for Bitcoin’s price.

Tony Sycamore, a market analyst at IG Australia Pty, suggests that this level could provide some stability in the coming weeks.

As the cryptocurrency market navigates through these challenges, investors and analysts alike are keeping a close watch on any developments that could influence the market’s direction.

For now, the sentiment remains cautious, with many waiting to see if the recent declines will continue or if a recovery is on the horizon.

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