Bitcoin at a crossroads in 2022

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A text by Philippe Labrecque, author and certified bitcoin professional (CBP).

As many bitcoin adherents and supporters had predicted, 2021 was a landmark year for the queen of cryptocurrencies. After shattering previous highs dating back to 2017, hovering around US$19,000 at the time, bitcoin has surpassed US$65,000 twice in 2021, more than triple the previous high. If such a performance can make you dream, it was nevertheless a disappointment for many in the world of bitcoin.

This skyrocketing having started following the “halving” of May 11, 2021, this event which takes place every four years since the creation of bitcoin and which reduces the creation of it by two, seemed to validate the analysts’ thesis. the most optimistic, announcing that the latter would reach a price of US$100,000 per bitcoin, at the very least, by the end of 2021.

Based on models that extrapolate the price from bitcoin’s performance during the last two halvings of 2012 (up over 9800%) and 2016 (up over 2868%), the most enthusiastic predicted a parabolic rise following the latest halving that would take bitcoin to a price above US$250,000. These patterns proved inaccurate so to speak as the price of bitcoin couldn’t even end 2021 above the psychological mark of US$50,000.

If several analysts announce and still hope that the upward trend will continue in 2022, completing the prophecy of the cycle generated by the “halving” of 2020, it should be noted that to date, bitcoin has still not decoupled from fluctuations in the US stock market while the two asset classes are simultaneously rocking in the same direction, depending on the winds that affect the financial markets, indicating a strong correlation in the intentions of investors between these two asset classes.

This correlation is a kind of defeat for bitcoin followers who present this cryptocurrency as a safe haven against the inflationary monetary policies of central banks, while everything indicates that bitcoin remains, for the moment, a risky asset.

Faced with a series of interest rate hikes announced in 2022 by the US Federal Reserve and the turmoil this monetary supply contraction policy should cause for the stock markets as well as for bitcoin, one can be skeptical at the idea that these can overcome this major obstacle and significantly exceed the peaks of 2021.

That being said, there are still several things in bitcoin’s favor in the short and long term.

First, the adoption curve of bitcoin, this strong underlying trend in favor of cryptocurrency, mimics the meteoric growth of the internet, that is, that of a minimal number of users in the mid-1990s to the nature omnipresent that the web represents in our lives today, an idea deemed laughable in its infancy.

Similarly, the number of bitcoin user-investors would be between 200 and 300 million at the start of 2022, a little more than 10 years after its creation, and it is predicted that this figure will reach more than one billion. by 2027, at the latest.

In addition, a growing list of companies like Tesla and Microstrategy, but also several private companies, as well as large investment funds and even countries like El Salvador have adopted bitcoin within their treasury, as a long-term investment or as legal tender.

Finally, in the near term, bitcoin price looks set for a rebound after falling more than 40% from its high of over US$68,000 last November.

After having avoided, for now, the potential disaster that would have been a lasting fall of the price below the support zone of US$40,000 at the start of the year, that the “bears”, these investors predicting a tendency to the decline, seem to be running out of steam, and this after the “Fed” threw a cold shower on investors by announcing the reduction of monetary easing policies to counter inflation within an American economy which would have resumed its breath, bitcoin may well have overcome the most recent hurdles before resuming its flight to new highs, luring investors unwilling to miss another vertical rise so typical of bitcoin’s price.

There is therefore hope in 2022 that bitcoin will finally meet the expectations of its followers, or at least regain the heights of last year. However, as the significant price fluctuation in 2021 demonstrates and the many obstacles ahead will be significant, a minimum of reserve and realism remains in order, at least until the next halving in 2024.

To (re)read by the same author: the last bitcoins in 2021?

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