Bitcoin is bearish, but there are at least three good reasons to invest now

Bitcoin is bearish, but there are at least three good reasons to invest now

Think about the end of 2021, when Bitcoin (BTC) was trading for around $ 47,000 – a figure that is 32% lower than its all-time high. At that time, the Nasdaq was valued at 15,650 points – just 3% below its all-time highest score.

Between 2021 and 2022, Nasdaq grew by 75% while Bitcoin by 544%: it is therefore perfectly normal for the price of the cryptocurrency to react more violently to macroeconomic tensions.

And such tensions actually occurred, causing Bitcoin’s price to collapse by a further 57% to around $ 20,000. This movement is not at all surprising, given that in the same period the Nasdaq lost 24.5% of its value. Investors should also take into account the Nasdaq’s 120-day volatility, which is 40% annualized versus Bitcoin’s 72%.

This is the main reason why investors should reconsider investing in Bitcoin: the higher volatility of the cryptocurrency also implies greater growth potential. However, the market is currently in a long bearish trend and there are no signs of a near-term recovery as inflation – in many double-digit countries – continues to put heavy pressure on central banks. Note how both Bitcoin and the Nasdaq performed poorly in 2022:

Nasdaq Composite Index (blue) vs. Bitcoin (orange). Source: TradingView

The rise in interest rates and the removal of debt asset stabilization programs gave birth to a economic environment of near recession. Whether or not the economy will recover is irrelevant, because no sane investor would opt for sectors exposed to credit when the cost of capital rises and consumption falls.

A moderate recovery would be enough to outperform tech stocks

Volatility is generally interpreted as negative, considering that price movements – both up and down – are accelerated. However, assuming a recovery in the next 12-36 months, BTC will most likely offer investors far greater profits than the Nasdaq.

Let’s assume a neutral and entirely plausible case, in which Bitcoin recovers 25% of the $ 48,700 lost from November 2021 to today. Such a scenario would bring BTC to $ 32,425: a value 53% lower than the all-time high of $ 69,000, but still a 60% profit for those who bought BTC at around $ 20,000.

To make a similar profit with traditional markets, the Nasdaq Index should not only recover the full 24.4% it lost since early 2022, it would also add an additional 40% upside. In other words, it should reach 19,563 points: a value of 21.6% higher than its current all-time high. Such an event is much more unlikely.

There is a limit to how much the stock can grow during bull markets

The top 7 Nasdaq companies are Apple, Microsoft, Amazon, Tesla, Google, Meta and Nvidia – all well-known tech giants. In equity markets, earnings data is the most important metric to support investor optimism, as higher profits can be redistributed to shareholders, used to buy back stock or reinvested in the business itself.

The problem is that when profits rise, companies have an incentive to issue more shares. Additionally, a technology company must constantly acquire potential competitors in more niche areas to ensure its leadership. Therefore, during bull markets the valuations of tech companies tend to get too high and buybacks make little sense.

But for Bitcoin, having more miners, investors or infrastructure doesn’t translate into a higher supply, since the production schedule of new coins is fixed and immutable. The offer does not change, regardless of price fluctuations.

Bitcoin was designed to survive regulation and centralization

The stock value of Nvidia, a leading maker of computer chips and graphics cards, hit its 68-week low when the U.S. government took The company banned from selling its AI chips to China and Russia. Bitcoin also faced a similar event, when China banned mining operations within its territory, causing the hash rate to drop by 50% in just two months.

The main difference is Bitcoin’s automatic difficulty adjustment, which reduces the pressure on miners when there is less activity on the network. Conversely, despite the United States preventing Nvidia from exporting its products, competition in Taiwan, Korea, and China are free to grow and sell their chips overseas.

Bitcoin is a peer-to-peer electronic money system, so it doesn’t need centralized exchanges to survive. If governments decide to completely ban cryptocurrency trading, that would only emphasize the importance and strength of this decentralized network. Several countries have tried to suppress the circulation of foreign currency, resulting in the emergence of a shadow market whose operators act as illegal intermediaries.

These three different scenarios, from a potential bull market to a total block by governments, favor Bitcoin over tech stocks. As a result, the relationship between returns and risks greatly favors cryptocurrency.

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