One of the reasons for the volatility of Bitcoin (BTC), the significant price fluctuations that frequently occur, are the different use cases. Some experts refer to it as “digital gold”, a really scarce and perfect store of value (SoV). Others see Bitcoin as a technology project or some kind of software with a corresponding network.
The adoption of El Salvador as legal tender will likely be evidence of the functionality of the medium of exchange (MoE) that the Lightning Network provides. The Layer 2 scaling solution enables instant transfers and is extremely affordable, although frequent on-chain transactions are required to enter or exit this parallel network.
As Bitcoin narratives change over time, the correlation of BTC with traditional assets also changes. For example, there have been times when it has maintained a strong correlation with gold.
The March 2020 crash was terrifying for almost every asset class, but this six- or seven-month recovery pattern is practically the same for gold and bitcoin. Oddly enough, the opposite movement occurred in 2021, showing a negative correlation between the two assets.
Is Bitcoin a Tech Stock Proxy?
Bitcoin, on the other hand, is starting to mimic the Hong Kong stock market, as measured by the Hang Seng Index (HSI). The top players include Tencent, Alibaba and Meituan, multi-billion dollar Asian tech companies.
This shift in investor sentiment – from tracking the price of gold to tech stocks – begs the question of whether Bitcoin will withstand the Hang Seng decline over the past 90 days. . Does a division make sense now? If so, will Bitcoin continue to act as a safe haven amid a general correction?
On September 14, China’s second largest real estate developer, Evergrande Group, announced that a sharp drop in sales had forced the company to postpone payments on its debt. This single company has more than $ 300 billion in debt, and that could seriously affect the broader market, according to analysts.
In August, China’s retail sales disappointed 2.5% yoy, with investors expecting 7% growth. Growth and the economy were clearly hit hard in 2020 by the governments’ response to the Covid-19 outbreak.
However, one has to keep in mind that the most influential central banks have been practicing interest rates close to zero or even negative interest rates since the first quarter of 2020. If the economy does not gain momentum in 2020, not much should happen in view of the multi-billion dollar stimulus package. taken to prevent a correction in the stock market in general and potential losses in the debt market.
The point is: Bitcoin may be 12 years old, but it has never seen a major economic downturn, at least nothing that threatens the $ 250 trillion global debt market. . Therefore, any analysis or estimate cannot provide a reliable assessment.
Bitcoin could be less affected by the market crisis
However, cryptocurrencies have advantages over traditional markets like commercial real estate, stocks, and bonds. Lenders will foreclose these assets if the client defaults and that puts additional pressure on as the bank or institution has no interest in holding them.
On the other hand, Bitcoin and cryptocurrencies in general cannot be used as collateral.
In terms of the liquidation of billions of dollars worth of Bitcoin futures in the derivatives markets, these are just aggregators. No doubt these events will affect the price, but at the end of the day BTC is still in effect on the futures exchange. It simply moves from the long-term account (buyer) to the short-term account (seller).
Until Bitcoin is fully fixed in the financial markets and accepted as collateral and margin, the medium-term systemic risk for cryptocurrencies will be lower than in traditional markets.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement carries risks. You should do your own research when making a decision.