Investing in cryptocurrencies comes with a lot speculation and volatility. Even the stalwarts such as Bitcoin (CCC:BTC-USD) face incredible price movements taking their investors on a never-ending roller-coaster ride. BTC-USD continues to trade as a high-risk asset, which seems to be accentuated in recent times. However, its fundamentals remain intact over a long-term horizon.
The crypto market is down over $1.3 trillion from its November peak. 2022 has turned out to be a shocker for the industry, which was on fire last year. Virtually every cryptocurrency has been struggling during the current bear phase.
Fiscal tightening measures from the Federal Reserve due to the rampant inflation are driving investment away from risky assets. Moreover, Bitcoin and other digital assets are under the pump from regulators more than ever. Hence, it has shed a tremendous amount of its value of late. However, to say that BTC-USD would fade away as it did a few years ago is a ludicrous notion.
Why is BTC-USD Falling?
As mentioned earlier, Bitcoin’s recent crash is due to the Fed’s hawkish stance and the possibility of harsher regulation.
The Fed will be ending several of its pandemic-era measures to stimulate growth. One would’ve thought these measures would remain in place for much longer, but the soaring inflation rates compelled the Fed to move quicker. Multiple measures were used to stimulate the economy in the past couple of years, including the reduction of interest rates and buying bonds.
However, it seems that the Fed would be hiking its interest rates as early as March, which has severely dented the crypto market. At this point, it doesn’t seem like a runaway inflation cycle; therefore, the tightening may not last long.
Furthermore, looming regulatory headwinds in various countries weigh in on Bitcoin’s price. Most recently, the Russian Central Bank proposed a ban on crypto mining and trading. It is estimated that the country accounted for over $5 billion in crypto trading, which is naturally a massive hit to the market. Consequently, industry insiders are expecting similar measures from other countries as well.
There’s Plenty Left In The Tank
Despite all the challenges, Bitcoin continues to gain mainstream acceptance and progresses towards stability. Its hash rate, one of its mining metrics, has been moving remarkably fast in the past three years. Though there was a dip after the Chinese ban on mining, its hash rate is back to an all-time high a few months later. Moreover, we see healthy activity regarding its transactions and active addresses.
It’s tough to say whether Bitcoin could become stable at this point, given its nascency as an asset. However, the increasing participation of institutional investors and top corporations is adding to its long-term legitimacy.
With more investors participating in its growth story, Bitcoin continues to be a strong store of value. Moreover, with new areas in the crypto realm opening up, such as non fungible tokens (NFTs) and the metaverse, BTC will continue to gain traction over time.
Bottom Line
The long-term trend with Bitcoin hasn’t changed much despite its recent challenges. It’s not an asset you’d want to trade in and out of though. It boasts a market capitalization of over $728 billion today, which is a mind-boggling number. Several other cryptocurrencies can be used to diversify your holdings instead.
As we advance, we will see more institutional investor interest in the asset as it gains more traction among companies. Hence, with the massive corrections in the market, I think it will be an opportune time to jump on the BTC bandwagon.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
