Bitcoin’s 22 percent crash in a matter of hours put the spotlight on the real issue that worries the market. The world’s most popular digital currency is still a long way from what traditional investors demand.
The currency that was called to be a solid store of value and a hedge against inflation failed miserably at both.
When the fear of the omicron variant of coronavirus unleashed a selling storm on world stock exchanges, the bitcoin it performed even worse than most risk assets, with the aggravation that it dragged the entire crypto market.
The first falls gave way to a strong liquidation of bullish positions, which brought prices to a two-month low, close to $ 42,000.
It was not something new, since the same derivatives settlement already took place in mid-November, when no one in the market knew of the existence of omicron, as explained by finance.com.
Bictoin is still a challenge
While prices recovered near $ 51,000, strong swings reinforce “our view that digital assets remain challenging,” he said Tuesday. Mark Haefele, Chief Investment Officer, UBS Wealth Managenent.
Cryptocurrencies and tokens are often considered a method of diversifying portfolios or a hedge against inflation.
But the last drop in prices “undermines this narrative “added the UBS expert. These are assets “highly speculative and can fall as fast as they rise,” said the same source.
The bitcoin crash has also shown how correlated digital currencies are with each other, “making diversification difficult.”
And for traditional fund managers, not being able to diversify or do it without guarantees is almost sacrilege.
The problem, regrets Haefele, is that the market does not offer “credible estimates of fair value.”
Bitcoin is still far from traditional investment
Therefore, the expert of UBS sees “difficult to get a fundamentally sound and defensible opinion of prices.”
“We consider that direct exposure in cryptocurrencies and tokens is suitable only for speculative and highly risk-tolerant investors, and we do not believe that they belong to a traditional financial portfolio,” Haefele riveted.
However, the expert from UBS broke a spear in favor of distributed ledger technologies (known as DLT), which are closely linked to the world of the blockchain.
Companies that adopt this technology project higher growth. For example, the payment company Square recently revealed its intentions to expand the business through the blockchain.
It’s another way to gain exposure to the crypto ecosystem without having to invest in bitcoin and other digital currencies, something Haefele advised against investors.
Bounce options for bitcoin
After the rises on Tuesday, bitcoin got into the battle to recover $ 51,000. It also recovered the average of 200 sessions, which goes on the daily chart for $ 46,000 and is an important long-term reference.
This will be the support that the price of bitcoin should maintain in the next sessions, while the first resistance on the high side is $ 54,000, where the average of the last 100 sessions passes, they explain to technical analysts at finance.com.
For now, the outlook for the rebound has improved as bitcoin remains above $ 50,000. Losing this benchmark would increase vulnerability in the short term, analysts said Oanda.
The opinion of the scientific community on the omicron variant will be decisive for bitcoin and the rest of risk assets.
But the inflation outlook will also have to be closely monitored. If bitcoin has shown anything, it is that it is still very vulnerable to tapering.
It is the narrative that Haefele defended. The digital currency still has a long way to go to gain the trust of traditional investors. Its role as a store of value in the face of inflation is still in question.