How to choose the right investment in the midst of the turbulent crypto market
Fear and concerns about inflation have dominated the market this month and given the situation, investors are curious and confused about how to put their capital in the right place. Bitcoin has undoubtedly become a top asset when it comes to making the right investment choice to protect against a potential loss of purchasing power in the US dollar.
But how do you choose the right investment given the volatility of Bitcoin and the entire crypto market through turbulent times?
Historically, gold and other precious metals have been viewed as a means of hedging against inflation in some of the most recent periods of high inflation in the United States. More recently, however, investors have embraced Bitcoin as an alternative store of value, arguing that its scarcity makes it a kind of “digital gold”.
Before we get into the reality of ‘Bitcoin v. Gold, ‘let’s examine the inflation debate. Consumer price index data released earlier this month showed inflation hit a 13-year high, with the rate of inflation hitting 5.4% year over year. This is well above the long-term interest rate target of 2%, which the US Federal Reserve classifies as economically sound.
In addition, there is debate over Fed chief Jerome Powell’s prediction that high inflation is temporary. Looking at the difference between inflation and the yield on 10-year government bonds, it is clear that bondholders do not care that their purchasing power on bonds declines with inflation.
However, the large divergence between inflation and bond yields suggests an interesting scenario. In a recent newsletter, Ecoinometrics pointed out that this divergence shows that betting on gold and bitcoin outperforms “seems like a good idea, but for different reasons”.
“Bitcoin itself usually has no relation to real returns. But a negative real interest rate environment due to high inflation is good for that. “
When comparing BTC to gold, it’s all about changes in real returns. Ecoinometrics pointed out that Bitcoin has moved into very negative real interest rates since the start of the year, but has not yet seen a major rally.
When real returns fall into negative territory, gold tends to react with a big rally. However, since there are no rallies, a parabolic movement could occur.
Given the above trend and the declining Bitcoin price, investors could choose to bet on Bitcoin instead of gold as a store of value.
“If so, it would be the first time a bitcoin rally has been triggered by negative real returns. In fact, such a move would still be a surge in adoption as it could be seen as a move from gold to bitcoin. “
It is important to note that the prevailing market sentiment for King Coin is extremely bearish. However, this does not mean that the opportunities in this market will slow down or die away; in fact, many analysts have suggested that these turbulent times represent excellent buying opportunities.
According to Ambcrypto