Why was crypto trending down and why is the Ukraine conflict important?
Bitcoin makes sense in world without trust
Bitcoin is still a bit of a mystery coin. Some parts resemble things we understand, but as a whole, we still don't know everything. Here some properties analysts usually argue:
It’s a Digital Gold
Not really. It is doing badly in the climax of a geopolitical conflict and it also performed poorly in 2020.
Option in Digital Gold
Well, BTC market cap < $1 Trillion, Gold is almost $11 Trillion. The value of this option will be more clear when the market cap of BTC > $3 Trillion. Maybe.
Decorrelation
Not really. The correlation of crypto with the Nasdaq is huge.
The risk asset of the Millennials.
Yes, BTC is the beta asset of the Nasdaq, so it is like 3.7x the trend of the Nasdaq.
I think the dominant actors trading crypto are momentum traders and they think BTC is a kind of tech stock. That is one of the reasons we have been experiencing massive drawdowns since November.
Fundamentals are focused on the supply side and many are expecting the price to reach around $100,000 based on the stock flow model. However, the demand story is different and the narrative of inflation and the Fed increasing interest rates affects the demand for this RISK ON asset.
Hedge against inflation
Equity, BTC and GOLD are good hedges against inflation.
Alternative Banking System
I think the thing that was missing was a real USE CASE. Crypto was the answer to a question we still don't know. But now? With the devaluations in Ukraine and Russia, if you are living there, in which monetary system will you trust?
The risk of war was underestimated. Now people will think about that. If I have to flee my country, is my wealth portable? Can the government confiscate it? 600 million Latin Americans are aware of this scenario. Now, it is a very important risk factor for the people of Turkey and Western Europe.
Thanks,
Guillermo Valencia
Florianópolis, Brazil.
February 25th, 2022