Bitcoin Remains Resilient In Light of Market Downturn
VYSYN Ventures Weekly Insight #93: Tighter monetary policies spark fear but long-term positivity remains
Over the past few weeks, the cryptocurrency market has been bearish, with most of the top coins losing a significant share of their value. Amid rising concerns of raging inflation and threats of tighter monetary policy by the U.S. Federal Reserve Bank (The Fed), retail investors are converting their risk-on crypto assets to risk-off sources.
Institutional investors, however, are taking a completely different approach to the market sentiment, affecting the broader digital asset industry. In the latest edition of the VYSYN Release, we will highlight some of the major factors that contributed to the recent crash and the market's sentiment. We will also analyze the state of the crypto industry in emerging markets and the possible outlook for the industry.
Concerns around tighter monetary policies drive prices lower
The prices of Bitcoin and other top cryptocurrencies recently tumbled as fears of hawkish monetary policy permeated the market. This week, the U.S. inflation rate reached 8.5%, its highest rate since 1981, with speculations that the Fed will implement its most aggressive monetary policy tightening process. Bitcoin was naturally impacted by the turbulent macroeconomic events, and recorded a drop during the week.
The largest cryptocurrency fell by over 8%, dropping to $39,714.69. This is the first time Bitcoin has slipped below the $40,000 mark since March 16, 2022. Many altcoins traditionally followed suit as Ethereum tumbled 5.6% to $2,994.33 and others like Solana, LUNA, Avalanche, Cardano, and more lost approximately 6-11% within 24 hours. All these negative activities on the market brought the industry's market cap below $1.8 trillion.
Bitcoin's correlation with the Nasdaq 100 is currently at record levels and this undermines its appeal as a safe haven and hedge against inflation. However, in the light of the recent developments, Bitcoin has managed to hold its value more resiliently compared to previous market cycles. For instance, March 2020 will forever be remembered as one of the crypto industry's biggest sell-offs. Dubbed the Bitcoin Black Thursday, March 12, 2020, saw Bitcoin lose roughly half of its then value, falling to $4,600 from over $8,000 in less than 48 hours.
Bitcoin responding to bearish sentiment differently
Despite the price drop, Bitcoin is still considered the "future of money" by investors in emerging markets. A recent survey conducted by the cryptocurrency exchange, Gemini, revealed that investors in developing countries, including Brazil, India, and South Africa, view Bitcoin as a "need to have" investment.
Investors are recognizing the benefits offered by crypto-assets and their potential as an accessible, transparent, and cost-effective transaction option compared to most traditional assets. More importantly, the potential capital gains and returns have boosted crypto adoption. This, however, has become a cause for concern as most investors jump into the space to make a quick profit, especially during the bull markets. Capital floods into the market but flows out just as quickly when there is a minor change in the market sentiment.
Confidence in Bitcoin appears to be increasing as a different kind of investor enters the scene, quickly controlling a large portion of the asset's supply. Rate-of-change charts reveal that sporadic market drops are becoming less frequent and less pronounced. These investors are not swayed by both internal and external market developments and are willing to hold their assets in any market condition.
Institutional investors fuel surge in interest and adoption
While most retail investors take positions simply because of the thrill of making profits but jump ship as soon as the market starts getting rocky, institutional investors are more aligned with long-term horizons. This category of investors is changing the way average investors view crypto investing, prompting a major shift in the market cycle.
Leading the pack is the business intelligence and software company, MicroStrategy, which is currently the largest corporate holder of Bitcoin. In the words of its CEO, Michael Saylor, "We're not sellers. We're only acquiring and holding Bitcoin. That's our strategy."
Tesla is another major Bitcoin holder. The electric car manufacturer made the biggest one-time purchase of $1.5 billion worth of BTC in February 2021. Although the company halted Bitcoin payments for its products due to energy concerns, it still maintains its resolve to not trim its stash. Other notable Bitcoin whales include Marathon Digital Holdings, Block (formerly known as Square), Bitfarms, Coinbase, and more.
(Source: Bitcoin Treasuries)
As more institutional investors joined the Bitcoin bandwagon, interest, confidence, and adoption of the digital asset increased simultaneously. More investors today are investing in the asset based on concrete financial reasons and knowledge of its potential rather than simply making a quick profit. Hence, the market's reaction to major external development no longer has a huge impact on the asset's value as much as it did a couple of years back.
Currently, Bitcoin is poised to continue rising to new heights, pushing boundaries, and testing new concepts. Of course, all of these will create fresh challenges and there will be occasional price drops along the way. However, the digital asset's upward trajectory seems likely. Even if it does experience major hiccups on its path, it is important to remember that it has suffered several massive price crashes throughout its history, even losing more than 50% of its value at times. However, Bitcoin has managed to rise above these drawbacks to get to where it is today. Bitcoin's upward trajectory is inevitable and unstoppable.
About VYSYN Ventures
VYSYN Ventures is a longstanding venture capital company that specializes in funding and supporting disruptive startups in the blockchain and cryptocurrency industry. We have provided early-stage support to several projects that have grown USD market capitalizations of hundreds of millions and even billions. Our incubation program focuses on providing capital allocation, versatile marketing support, and tech assistance.