• Sabrina Akramova , Editor & Content Manager at Financial IT


• 14.03.2022 04:00 pm
#bitcoin #cryptocurrency #cryto

Bitcoin has been unstable since Russia’s invasion of Ukraine, which started on the 24^th of February this year. Although the financial impact and long-lasting consequences of war remain unclear, drastic changes have already been witnessed. As Bitcoin has been sticking to a £27,000-£34,000 trading range during the last month, uncertainty levels over crypto’s ability to remain powerful seem to rise significantly. 

Chaos is here, but Bitcoin remains low

It has always been a common belief that Bitcoin is going to be a stable digital asset with minimal risks of losing value, especially during inflation and global economic crisis. Millions of people around the globe believed in a stateless and decentralized digital currency, which would become a financial ‘safe heaven’ during political frictions and consequential banks’ censorship of dissidents. 

This is the moment. In the US, inflation is rising faster than it has in decades, and the VIX — the so-called fear index used by Wall Street to gauge expected stock market volatility — has risen more than 80% this year. The threat of a protest convoy of anti-vaccine truckers last month prompted calls for a type of money that isn't subject to government seizures. Because of the sanctions, many US companies have pulled out of Russia, making it nearly impossible for citizens to access their bank accounts, use credit cards, or even post on social media.

The crisis has arrived, which is a potentially perfect condition for Bitcoin’s booming. With the threat of nuclear war in the background, the crypto prices plummeted dramatically. Bitcoin is not alone - The S&P 500 fell by the most since October 2020, while the Nasdaq and Germany's benchmark index fell into bear markets. Investors and analysts are revising their forecasts to account for everything from commodity supply shortages (more on that below) to Russian President Vladimir Putin activating his nuclear forces.

Why is Bitcoin not playing a central role in global disintegration? 

Presumably, cryptocurrency remains being complicated for the average person to use, particularly during a war between Russia and Ukraine. One frequent theory among Bitcoin doubters is that this particular crypto is still too volatile to be effective as a hedge against economic and political friction. As a result, uncertainty surrounds Bitcoin’s safe-haven status. 

On the other hand, the reason for this 50% decline is that market narratives have moved from risk-on to risk-off. Liquidity is dwindling as the central banks begin to reduce excess stimulus, and as average people recognize that COVID-19 is ending, that we will return to work, and that we will not all be buying NFTs and migrating into the metaverse tomorrow. Bear markets are nothing new to Bitcoin traders. Bitcoin's price decreased by over 80% in 2017-18 just before Fidelity and PayPal invested billions of dollars in crypto together with armies of retail investors stepping in. 

What are the Bitcoin price predictions?

It was easy to anticipate a $100,000 Bitcoin price late last year, after its November peak. Since then, Bitcoin has plummeted, making forecasting difficult. Extreme crypto skeptics believe Bitcoin will crash to $10,000 by 2022, but many experts anticipate it will still reach $100,000, but on a slower timeframe. The volatility is nothing new, and it's one of the reasons experts advise new crypto investors to be exceedingly cautious. Like all other cryptocurrencies, Bitcoin has steadily increased in value over time. Bitcoin investors are naturally intrigued about how high it can go.

Given the stability of the key trade indicators, Analytics Insights predicts Bitcoin to reach the $50,000 mark by the end of the year. According to NextAdvisor (in partnership with TIME), despite the pric e drop, Bitcoin is believed to be on its path to $100,000. A recent Deutsche Bank analysis indicated that a quarter of Bitcoin investors expect the price to hit $110,000 in five years.

The future of Bitcoin

Although Bitcoin’s rate of growth was impressive, it stopped going up. The rate is gradually recovering now, but the changes in regulations and consequences of global tension are still unclear. By buying Bitcoin today, you expect the speculative craze to continue, and you'll be able to sell it for much more than you paid. But, as recent history shows, such ideas, while tempting, are rarely achieved. The pleasure of speculative investing wears off eventually. 

We can (and will) speculate on the future value of cryptocurrency for investors, but it is still a new and risky investment with limited historical data on which to base projections. So it would be wise to invest what we can afford to lose and stick to more traditional investments for long-term wealth accumulation. Keep your crypto investments minimal and don't prioritize them over other financial goals like retirement savings and debt repayment.