The entire cryptoverse is vulnerable to rising borrowing costs and that risk remains in the short term. For now, the main catalyst will be the signal that the Fed sends to the market with its monetary policy and economic expectations.
Bitcoin is trading around $19,000, a 58% drop in value by 2022 and down 71% from its high in November last year, according to data from Bloomberg.
Eloisa Cadenas, CEO of Cryptofintech, mentioned that it is important to analyze what bitcoin is related to, since years ago the cryptocurrency responded to hedging factors and in the pandemic it was expected to fall, however, it was the opposite and served more as a reserve of value.
Why is bitcoin so volatile?
The volatility of bitcoin has a lot to do with the size of the market, despite the fact that it has already managed to reach a very considerable market capitalization.
One of the realities about the digital currency is that compared to the size of the stock market capitalization, that of bitcoin is low, so any sale or purchase movement has a greater impact on its price.
“The price volatility could be corrected when bitcoin reaches multi-trillion dollar market caps and you will see a much higher bitcoin price, that will happen at some point. But for now, as it is still such a young asset, volatility will continue to be observed in the years to come,” said Guillermo Barba, chief strategist at Top Money Report.
Speculation is also part of the food of bitcoin. Mauricio de Medina, advisor in investment strategies certified by the AMIB, explained that there is no way to value bitcoin, since there is no support for its intrinsic value of the digital asset. The specialist said that the large capital administrators have had to take their resources as a result of various situations and therefore affect the market for “trusted” money.
“Cryptocurrencies are not of standardized use where they can be bought. So those conversions need to be made when problems begin to be seen ahead, so they take refuge in what is known or can be considered a refuge of value and bitcoin does not meet the characteristics of a reserve of value. With the current fluctuations it is impossible to call it a value safeguard and we cannot consider it as a hedge against inflation either”, added De Medina.