Will Bitcoin Overcome Instability to Replace Gold?

After a record-breaking start to 2021, and two spectacular rallies towards breaking all-time highs in the last year, investors have expressed confidence that the asset will exceed $100k by the end of 2022.

Unfortunately, this optimism was short-lived and USD plunged more than 50% from its peak of $69,044.77 on November 10, 2021.

Bitcoin’s price chart shows that although the cryptocurrency has not fallen back to July 2021 levels, there is a consistent decline we have yet to see meaningfully.

“Bitcoin was once one of the protections from inflation and an option to gold, which generally drove crypto assets,” stated Maxim Manturov (head of investment advice at Freedom Finance Europe). It is important to remember that the Fed will increase rates, reduce QE, balance sheets, and balance them to combat inflation. This could make Bitcoin more volatile, which will lead to more rebound attempts. Investors will have better options for cash, as well as more risk-reward ratios. 

This is why investors may be able to take advantage of the uncertainty surrounding Bitcoin’s performance.

“Bitcoin, having reached $69,000 at the peak, has been in a downward trend and is currently in correction channels since November 2021. It is important to understand the causes of the rise in BTC and other crypto assets. He said that the first was the unprecedented liquidity in financial markets, which led to all risky assets rising on the planet and resulting in an imbalance in market demand.

The ability of Bitcoin to recover from current price problems could have a significant effect on its perception as “digital gold”. Although gold is a popular commodity to keep during times of inflation, its performance has been far less than other commodities and REITs.

Replacing ‘Relic’ Gold

Circle CEO Jeremy Allaire believes that Bitcoin should not be regarded digital gold as it has the potential to reach far beyond the precious metal.

“I don’t like the analogy of digital gold because it’s such a relic. It is extremely valuable as an exchange currency, and has never been used in modern society to make money. Allair stated that I believe the demand for bitcoin will be much greater ,’

Allaire is positive about Bitcoin’s future and believes the asset will reach a valuation of more than $1 million in the long-term.

Bitcoin is the most well-known cryptocurrency. However, its technical framework and blockchain are not as functional as other coins such Ethereum. While it is possible to see widespread BTC transactions in the future, it is more likely that Bitcoin will be used primarily as a wealth store.

This makes Bitcoin more like gold than other fiat currencies. This can be a positive thing for investors, many of whom are optimistic about the coin’s future.

Fred Schebesta, cofounder of Finder shares Jeremy Allaire’s bullish outlook for BTC.

Schebesta stated that Bitcoin is currently in a phase correction. This could continue for the remainder of the year, as it settles into greater stability. It’s volatile, but it will get less volatile over time and swings will be less frequent.

Schebesta predicts that BTC will be worth $105,000 by December 2022 after a strong recovery of its current lows.

The fallacy of mainstream adoption

While the prospects of mainstream adoption have been a motivating factor for Bitcoin investors, they also believe that the coin will see a higher price as more people buy it. Goldman Sachs argues that this is not necessarily the case.

According to the banks giants, mainstream accept of cryptocurrency assets will likely increase their correlation with other mainstream asset classes.

“While it can increase valuations, it also likely increases correlations with other market variables, reducing diversification benefit of holding that asset class,” claimed the note by Zach Pandl, Isabella Rosenberg. They added that mainstream adoption would be a “double-edged sword” for cryptocurrency.

This correlation could lead to the end of the crypto-price rallies.

While the future of Bitcoin is uncertain, it is possible that its digital nature will make it a more useful store of wealth than gold. It’s reasonable to expect investors to start buying Bitcoin, rather than the precious metal growing over time.

It remains to be determined whether BTC’s purchase price will remain at $37,000, $100,000 or $1,000,000 for investors in the long-term future.