Over the past few months, Bitcoin has been very volatile, mainly as a result of factors in the overall economy. From the macro risks such as high interbank rates, global inflationary pressures, these have brought a lot of volatility to the cryptocurrency.
Exogenous Factors Affecting the Price of Bitcoin
Cryptocurrencies are no exception to the overall macroeconomic environment and trends regarding other traditional markets. Similar to any other asset, Bitcoin price is closely related to the policies of the global economy, interest rates, and inflation rates. Here are some of the key macro risks currently affecting Bitcoin:
In a bid to rein in inflation, central banks across the globe and especially the Federal Reserve in the United States have had to increase interest rates. In general, higher interest rates fortify the stance of fiat money like the USD and make typical assets like bonds more desirable. This shift weakens the demand for higher-risk assets such as Bitcoin which has contributed to its pullback in price.
The implications of the use of Bitcoin as an inflation hedge in real inflationary situations have not been well defined. The increase in global inflation that results from shocks in the supply chain, energy costs, and government expenditure has resulted in increased economic risk.
That being said, macro factors are certainly not conducive to cryptocurrency investment in the long run, but for someone targeting the mid-term, Bitcoin might be looked at as a buying opportunity. Several factors suggest that the cryptocurrency may recover and even thrive once global economic conditions stabilize.
Nevertheless, macroeconomic conditions remain somewhat unfavorable, however, institutional Bitcoin adoption persists in increasing. Financial investment houses, investment bankers, and hedge funds are gradually warming up to incorporate Bitcoin in their portfolios. They have added that the growth of the Bitcoin infrastructure and the stability of the regulatory frameworks of the digital currency also present long-term certainty that is suitable for institutional buyers seeking to diversify.
However, the capped and inherent scarcity of Bitcoin at 21 million coins still remains a prominent one. As inflation fears persist to trail the traditional fiat currencies, the rarity of Bitcoin might just work well for its use as a store. This scarcity could lead to demand within the medium to long term run given increasing adoption by additional countries and corporations with the cryptocurrency.
The following estimated Bitcoin halving is to occur next year, 2024, which implies that miners will get compensated at half of the existing amount. Over time previous halving events led to rather sharp price jumps as new supply is known to put upward pressure to the price. Along with this event, the probability of the resolve of macroeconomic issues on the global level could also lead to more focused mid-term appreciation of the Bitcoin price.
Long-Term Strategic Positioning
Still, in the short term, Bitcoin is threatened by a number of macroeconomic risks Nevertheless, the long-term outlook for Bitcoin remains undamaged. If one is seeing the long-term picture beyond this and any fluctuations, then buying Bitcoin now will likely prove to be a smart decision.
