Adoption arrives in volatile strides
Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
As the second week of March draws to a close, BTC finds itself firmly within the trading range carved out in early January, when the leading crypto’s retracement from $69k highs saw it break below long-held $46k support - a level that now forms significant resistance to the upside. For the most part, the asset has found significant support at $37k, and has been oscillating between the two levels since the beginning of February.
It’s interesting to note that even with exacerbated macro tensions, BTC’s reactive volatility has been constrained to the $37k-$46k range - a region with historically large volume. That being said, the price action of recent weeks has been anything but muted, with daily candles spanning almost the entirety of the >20% range in whiplashes of conflicting momentum.
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A softening regulatory stance
US president Joe Biden published an executive order on Wednesday, calling for a federal risk/benefit analysis of cryptocurrencies as a step towards adoption, regulation, and integration into traditional financial systems. In stark contrast to China’s wholesale ban on digital assets, Biden’s order calls for policy development aimed at affirming consumer protection, financial stability, financial inclusion, responsible innovation, and curbing illicit activity in the space. Notably, the order places impetus on the global competitiveness of the US in relation to the digital asset space - further validating the increasingly accepted idea that crypto, as a novel, disruptive technology, has cemented itself as a major role player on the macroeconomic landscape.
In response to the news, a flurry of bullish sentiment saw BTC close Wednesday on the cusp of $42k - a brief rally that abruptly climaxed with a drawdown to $39k by Thursday morning.
Similarly, Thursday’s release of updated US inflation data as per the Consumer Price Index (CPI), saw a short-lived bullish wick as the latest figures aligned with “priced-in” forecasts of 7.9%. In a span of minutes following the publication, bitcoin leapt from $39k to the precipice of $40k, before immediately retracing to the $38k region.
Forward focus
Bitcoin’s constrained volatility, even in the face of bullish news, points to a pervasive feeling of uncertainty that extends to bonds, equities, and commodities in a macro environment tuned to hair-trigger sensitivity. After all, the world’s largest economy recording 7.9% inflation, whether forecast or not, underpins the instability of the current global economy as it continues to mitigate the many impacts of a multi-year pandemic on businesses and individuals. At present, we find ourselves on especially shaky ground, further evidenced by the blistering gains of basic commodities like corn and wheat in recent weeks.
To de-risk from investments generally entails a return to fiat and safe-haven assets, which poses an interesting dilemma for investors in 2022 - how effective is a flight to fiat when the US dollar, the global reserve currency, is losing value at a rate of almost 8% year-on-year?
The obvious answer is basic goods and safe haven assets. And for a growing segment of the population skeptical of the practicality of physical metals as both a store of value and medium of exchange, those safe haven assets include bitcoin.