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Higher or lower from here? Let’s discuss the Bitcoin Price in 2022. The price of bitcoin has crashed 50% since its all-time high of $69,000 back in November last year. The rapid retracement to $33,000 has left many investors questioning whether the worst is over, or instead just the beginning of a sustained downward trend. This shares the same sentiment of all risk-on assets at a time of financial uncertainty. Investors are now trying to forecast Bitcoins price movement in the short-term, with contrasting views from the bulls and bears of the market.
Firstly, it should be addressed that no matter the economic environment or investor sentiment at the time, Bitcoin’s price has always fluctuated significantly due to its volatile characteristics. As a result, Bitcoin’s numerous corrections since its existence, including the most recent 50% crash, are nothing unique.
As Crypto is decentralised, it has no centralised authority, which has both negatives as well as positives. One negative in particular is that the price can easily be manipulated due to the fact that it is unregulated. As a result, when other risk-on assets drop, Bitcoin tumbles harder and faster. However, this remains to the upside as well as the downside, and whenever risk-on assets rise, Bitcoin tends to outperform all its competitors.
Back in 2018, Bitcoin witnessed an 80% crash, signalling the beginning of the “bear market”. It can therefore be argued the two 50% drawbacks seen in the last year don’t necessarily suggest another bear market, but perhaps a prolonged period of accumulation. Subsequent to these events, Bitcoin has seen tremendous rallies in the hundreds of per cent. This is primarily the reason behind the strong “hodl” mentality as more often than not after a dump there is usually a large pump.
Whilst Bitcoin is suffering from its lowest price in 6 months, the fall correlates with other risk-on assets such as equities. For context, U.S. stocks are off to their worst start ever to a year through 16 trading days, with the S&P 500 dropping over 10%. In addition, individual blue-chip stocks have struggled, with Netflix falling over a whopping 36% for the month as an example. This indicates that the drop from Bitcoin is a symptom of wider investor skepticism and uncertainty over the macro environment today.
Over the last year, asset inflation has soared as a result of investors trying to escape rising inflation rates. This is understandable considering the US economy has printed more money since the start of the Covid-19 pandemic than they have in the last 40 years. As a means to tackle this issue, the Fed has responded by tapering and has flirted with the idea of raising interest rates. This has led to investor sentiment diminishing and in turn, leading to a mass exodus to risk-off assets such as cash. It is worth also highlighting the wider global issues that currently exist. For example, trade wars are causing supply chain issues, coinciding with political tensions from Russia and China as they increase their own threats to invade Ukraine and Taiwan respectively.
The outlook on the Bitcoin price and the market as a whole is largely determined by the macroeconomic and political environment. Whilst Bitcoin and other risk-on assets have already had a sizeable dump, this is mostly just from emotion and investor sentiment ahead of the Fed’s policy plans. If the Fed decides to make 2, 3, or even 4 interest rate hikes, they run the risk of a global economic crash and debt implosion. In the short term, this would be detrimental to not only the Bitcoin price but also the bond and stock market.
On the other hand, if the Fed decides to pivot away from raising interest rates, the likelihood is that the USD will continue to devalue, become a reserve currency risk and lead many other countries into hyperinflation. If this was to occur, it would see the Bitcoin price surge due to its sound money properties i.e. deflation, store of value, and supply limit.
In many ways, the Federal government is between a rock and a hard place in how they try and navigate this inevitable debt cycle. I envision that opting for a prolonged global recession would be avoided at all costs by the Fed and therefore asset inflation should continue to rise. In terms of the Bitcoin price, in the short-term, it is impossible to say but over the long-term, it is a must-hold asset. If the Fed decides to pivot then we could easily see a rebound in risk-on assets, in particular Bitcoin, which in the right sentiment could see it surpass $100,000 by the end of the year. Alternatively, if we see multiple hikes or worse, a war between two nations, it could result in price suppression for some time.
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