- The benchmark cryptocurrency is now down around 14% for the year (at the time of writing) and as the U.S. Federal Reserve turns hawkish, even more volatility can be expected.
- Fortunately for bitcoin bulls, the all-important US$40,000 level of support, while tested, has proved sufficiently resilient, for now.
It’s been a heart-stopping 2022 so far for bitcoin investors.
Since hitting a high of almost US$69,000 last November, bitcoin is now off some 40% from that level, and dipped below US$40,000 albeit momentarily, over the past day.
The benchmark cryptocurrency is now down around 14% for the year (at the time of writing) and as the U.S. Federal Reserve turns hawkish, even more volatility can be expected.
Nevertheless, repeated attempts to declare bitcoin dead in the water have proved premature and while the road ahead may be rough, it is still up some 500% from before the pandemic.
To be sure, the pandemic has been a feather in bitcoin’s cap, with record amounts of central bank stimulus allowing cryptocurrencies to break into the mainstream as institutions and retail investors got involved in the ecosystem.
But now that the Fed has turned towards tightening monetary policy, whether the value proposition that is cryptocurrencies can be materialized in its price action will be tested.
Fortunately for bitcoin bulls, the all-important US$40,000 level of support, while tested, has proved sufficiently resilient, for now.
Being a good barometer for the current reduction in risk appetite, Bloomberg Intelligence’s Mike McGlone projects that bitcoin will nonetheless come out ahead as the world increasingly goes digital and the benchmark cryptocurrency becomes viewed as collateral.
Flows are also reflecting a shift between long term “hodlers” of bitcoin and cryptocurrencies and short-term traders, here for a quick flip, with evidence that bitcoin and cryptocurrency bulls have bought the dip.
And that may explain why Goldman Sachs is of the view that so long as bitcoin continues to take market share from gold as part of a broader adoption of digital assets, it could potentially hit US$100,000.
According to the venerable Wall Street institution, bitcoin’s float-adjusted market cap is just under US$700 billion, which accounts for just 20% of the “store of value” market which is believed to comprise both bitcoin and gold.
If bitcoin’s share of the store of value market were hypothetical to rise to 50% over the next 5 years, its price would increase to just over US$100,000, for a compound annualized return of around 17%, according to Zach Pandl, Co-Head of Global FX and EM strategy at Goldman Sachs.
Over longer time horizons, bitcoin’s performance is unparalleled – over 4,700% since 2016, and Pandl’s note suggests that despite the lack of ESG chops for bitcoin, it won’t stop the demand for the asset, even if it may provide an obstacle to institutional adoption.