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Investors use Bitcoin for diversification rather than as alternative to gold: what to expect from cryptocurrency?

Relevance up to 08:00 2022-03-08 UTC–5

World stability has been jeopardized during the armed invasion of Ukrainian soil by the Russian army. Europe and the U.S. are imposing numerous sanctions, and the situation is changing daily. All this is reflected in the behavior of financial instruments. Just two days ago, it seemed that Bitcoin could become the main reserve of the Russian economy, and today it is already declining below $40,000.

These events reflect the current situation in the world, and there is no reason to believe that soon everything will come back to a normal state. The volatility of the economy will decrease, but the constant stream of sanctions and even the threat of nuclear doomsday do not allow to form a sustainable system of institutional and retail investors. What does this tell us?

Although it may sound strange, investors set the main priority of activity in the period of global financial uncertainty. This goal is the preservation of current capital without any intention to multiply it. Under conditions of global economic and political instability, the main tool in the hands of investors becomes capital diversification. It is with this process that many experts have confused the impulse inflow of investments in Bitcoin.

Institutional and retail investors use the flagship cryptocurrency as part of their investment portfolio. However, it is not the main part. Precious metals and the US dollar come to the fore. Gold hit swing highs, while platinum and palladium renewed their records. The US dollar has also strengthened its position as 59% of the world’s reserves are now held in USD.

In addition to Bitcoin’s decline, it is not hard to compare the facts and understand that precious metals and the U.S. dollar have become the main tools of investment portfolios during these extremely volatile times. It is also important to note that judging by Bitcoin’s growing dominance, Ethereum and other altcoins are in a prolonged crisis. The TVL indicator of the DeFi sector proves this.

In such a situation, Bitcoin’s future looks uncertain. The cryptocurrency continues to be trading within a wide range of $32,000-$45,000. Shortly, the market will not be ready to take active actions for profits. At the same time, well-known crypto analyst Michael van de Poppe believes that Bitcoin will resume its uptrend soon. The trader is sure that the fall in price should be used to average positions before further growth.

Poppe’s optimism is encouraging, but with some caveats. Given the political and economic uncertainty, Bitcoin will continue to consolidate in the current range of $32,000-$45,000. The war is far from its end, and therefore there is no reason to expect a prolonged uptrend. With this in mind, the medium-term strategy will not bring the desired result.

Active Bitcoin trading is possible only within the range of $32,000-$45,000. In addition, the asset declines sharply when reaching the upper boundary of the range. During the last month and a half, Bitcoin collapsed sharply three times after approaching $45,000. This indicates a large number of short positions in this area and investors’ fear of buying the BTC/USD pair to break through this level. That said, the long-term holding strategy is still relevant.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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