Bitcoin (BTC) has upended the financial systems of many countries since its inception. It has become a digital stepping stone for free and anonymous transactions and transactions. It has its fair share of ridges and troughs. The bursting of the cryptocurrency market bubble was just one of many instances that raised doubts among skeptics, but did not stop Bitcoin from evolving and expanding. It has dominated the cryptocurrency market over the past decade, paving the way for more coins to enter.
During the first half of 2021, the price of Bitcoin rose dramatically, surpassing $60,000. The pace of increase slowed in the third quarter of the same year, but continued. Prices took a hit, hitting record highs. $68,789. It is no surprise that Bitcoin trading has created many millionaires in a short period of time. However, the celebrations were short-lived as BTC plummeted in the following months.
Over the past year, BTC has been showing signs of a potential rebound. The price is moving sideways but has moved higher. Volatility is still evident, but predictability has improved somewhat.
It is still unclear whether BTC is a good inflation hedge or a safe investment, but one thing is certain. Bitcoin remains a valuable token in the market as it is still popular and widely used by many businesses and government agencies.
Therefore, in this article we will discuss how Bitcoin has behaved over the past three years. We will discuss how this correlates with macroeconomic indicators. We’ll also weigh historical risk and return and compare it to some stock indices to gauge its reliability as an investment. Finally, let’s predict the price trend.
Bitcoin behavior over the years
Doubts about Bitcoin’s volatility have surrounded it since it began circulating in the market. Questions and criticism have intensified since the bubble burst in 2017 and 2018. Nonetheless, BTC and the entire cryptocurrency market continued to develop and expand as more people became interested.
Anonymity and freedom were the main reasons. However, most traders have taken advantage of the volatility to become rich by trading BTC. The sharp rise and fall has created the perfect opportunity to buy and sell BTC in the market.
What has become more noticeable over the past two years has been the change in BTC’s behavior. Over the past decade, we have associated volatility with market sentiment. However, macroeconomic changes appear to have had a significant impact on recent BTC price changes. We can see the inverse relationship between inflation and BTC. BTC peaked in 2021, but price growth slowed in the fourth quarter as inflation began to accelerate.
Inflation peaked at 9.1% in 2022, causing BTC to plummet. Over the next few months, inflation began to slow. Meanwhile, the BTC changes became more manageable, although the downward trend was still evident. A series of interest rate hikes were the main reason.
In 2023, BTC began to rebound and eventually doubled. This coincided with a continued slowdown in inflation and a pause in interest rate increases by the Federal Reserve. However, from June to September, BTC fell again as inflation regained momentum and exceeded the 3.6% consensus. Since October, BTC has increased in a manageable upward trend as inflation has declined again.
You can better evaluate this by obtaining historical prices and inflation for regression analysis. The results comply with our hypotheses. Multiple R, or a correlation of 76%, shows a strong inverse correlation between inflation and BTC. Additionally, the P value of the analysis is 0.0007, which is much lower than the maximum value of 0.05. So the x and y relationship is important.
From here we can draw two conclusions. First, inflation has had a significant impact on BTC over the past two years. Second, Bitcoin may not be an ideal inflation hedge. Nonetheless, the increased predictability of price changes may make it suitable for risk-averse investors. It also becomes easier to predict price trends, giving traders perfect timing to buy or sell Bitcoin.
Is Bitcoin a Strategic Investment?
Bitcoin remains the leading cryptocurrency, not only in terms of popularity and reputation, but also in terms of scale. The market capitalization to date is $884.29BIt corresponds to almost half of the entire cryptocurrency market capitalization of 1.71T.
Cryptocurrency exchanges also rely heavily on BTC. This contrasts with FTX, which was the largest cryptocurrency exchange before its collapse. Due to its high dependence on its own token holdings, it was unable to maintain liquidity. Therefore, many exchanges have learned their lesson and diversified their holdings to maintain adequate asset and token holdings.
BTC can be very volatile and risky, but the returns have been promising. This is much higher than the stock market. BTC returns exceeded the S&P 500 (SPX) and NASDAQ Composite (IXIC). This table compares and evaluates the risks and returns of Bitcoin and two major stock indices.
We used the Sharpe ratio to compare the risk and return of three investments. Clearly, Bitcoin has delivered outstanding average annual returns of 126% over the years. It was almost 10 times higher than SPX and IXIC. This alone may explain why so many traders have found their fortune in BTC trading.
When it comes to volatility, BTC is much riskier than the stock market considering its standard deviation of 78.69%. Nonetheless, many traders have taken advantage of this because wider ups and downs can mean higher profits. And even if you look at annual returns and standard deviations, BTC will still win. The Sharpe ratio of 1.55 is approximately three times that of the two stock indices.
And considering the stable BTC upward trend and increased predictability, it may be wise to: Open a trading account In the cryptocurrency market.
Bitcoin Valuation
We have already evaluated historical returns and external factors affecting BTC, but it is important to value them and anticipate emerging trends.
As BTC began to rebound, we immediately took a bullish stance with a double bottom pattern at $29,993. This became even more evident in the third week of October when the previous resistance level of $31,000 was surpassed. As it picked up speed in November and December, we tested it again at $40,000.
There has been some recent decline due to the Binance incident. But less than two weeks later the price came back. The previous resistance level now appears to be the new support level.
The upward trend may continue as Bitcoin expands and macroeconomic indicators stabilize. Buyers could wait for a decline from $38,884 to $40,280 to avoid the bull trap. We place a new support level at $37,720-$38,900 for the bullish trend to continue. It may also develop new resistance at $46,420-48,420. At this point we should watch for a decline within the new support level. Because this could indicate a potential bull trap.
This could also help assess whether the upward trend of the past two months could continue while we await the inflation report and a decision on whether to pause or cut interest rates. This may be logical, as the inverse correlation between inflation and BTC is noticeable.
conclusion
Bitcoin continues to lead the cryptocurrency market as it becomes a necessity for businesses and homes. We can continue to expand and keep our prices rising. However, traders may now need to watch out for macroeconomic changes considering their impact on BTC. Nonetheless, BTC remains an attractive investment with perfect returns and attractive upside potential.