Over the past 24 hours, the Bitcoin price has recovered significantly and reclaimed $20k during a period of high volatility in traditional markets, particularly in foreign exchange markets.

Many speculators are approaching the volatility from different perspectives, with some viewing the rise as a sign that there may be further upside and that the worst of the bear market is behind us, and others taking the view that this is just a short relief rally, and the price of BTC will continue to fall to $11k.

Bitcoin price reclaims $20k

The Bitcoin market peaked in November 2021 and since then has fallen approximately 70% in price to where it is today.

Bitcoin price

The bear market thus far has been such that Bitcoin has been in a consistent downwards trend now for almost a year and has disenfranchised many of the investors who became mired in hubris during the bull market.

Currencies continue to collapse against the dollar

“There are decades where nothing happens, and there are weeks where decades happen”

– Lenin

Over the last few weeks there have been a series of extremely important geopolitical events.

First and foremost, the ongoing war in Ukraine has caused all sorts of uncertainty in the markets as capital allocators speculate on the potential ramifications of the geopolitical tensions.

The cost of living crisis in Europe has not abated and is showing no signs of doing so. Countries such as Germany have been preparing for the upcoming winter and are desperately trying to pivot away from their dependency on Russian gas.

Concerns about inflation and interest rates haven’t subsided. Market participants are concerned about inflation, but they are also concerned that rising interest rates could negatively impact asset prices.

Interest rates have been risen by central banks around the world, including the Federal Reserve, the Bank of England, and the Bank of Japan.

GBP/USD falls to lowest level in 37 years

Some of the most significant news in the past couple of days has been the high degree of volatility in the foreign exchange markets, particularly the GBP/USD pair.

The devaluation of currencies against the dollar has been a consistent trend of the last couple of years.

Some currencies have fared worse than others, with many of the weaker currencies having already suffered complete collapses.

Some of the most recent and most significant examples of currency devaluation over the last few years include those in Argentina and Lebanon, the latter being forced to contend with a civil unrest and sustained outbreaks of violence.

Bank of England “will not hesitate” to raise interest rates

The Bank of England announced today that they “will not hesitate” to raise interest rates further, given the recent devaluation of sterling against the US dollar.

This follows moves that have already been taken by the Bank of Japan to raise interest rates, given that JPY has continued its steady trend of losing value against the USD over the past year, having fallen from $0.009 to $0.0069.

The recent mini budget announced by the new Chancellor of the Exchequer, Kwasi Kwarteng, was hailed by some (particularly in the first few hours after the budget was announced) as being something that the country hadn’t seen in quite a while – a truly conservative fiscal policy.

However, the following devaluation has demonstrated the declining relative importance of the UK when compared to US markets – a trend that has been visible for most currencies over the course of the last year.

Since the US dollar remains the world reserve currency, it is the currency with the least uncertainty. This means that the Federal Reserve is able to take more fiscal risk than other countries, since the strongest currency ought to be the last to fall, and the US maintains a strong army and worldwide influence to support their currency.

As currencies around the world seek to mitigate the rising risks of ongoing inflation, calls to raise interest rates will inevitably come to head with calls that they should be lowered in order to protect asset prices – central banks around the world now have a difficult balancing act to manage, having kept interest rates artificially low for far too long.

Is Bitcoin becoming a “risk off” asset?

Many investors have been displeased with Bitcoin’s correlation to traditional markets, especially those who thought that Bitcoin could operate as a reasonable inflation hedge.

The volatility in the Bitcoin market means that over the short term it doesn’t always work as an inflation hedge – if one wishes to store value over the short term, they have little choice but to choose fiat currencies that devalue steadily (ideally dollars), and those who wish to store value over longer time frames must accept a higher degree of volatility.

Recently, Bitcoin and crypto markets have shown a high degree of correlation, given that many of those who hold them as assets also hold assets in traditional finance.

However, as rising currency wars cause more problems for local stock markets, it is becoming increasingly likely that capital allocators will look to store allocate elsewhere: bond markets can no longer be treated as safe havens, and Bitcoin provides a clear alternative for this – it seems that the tides of the investment world are changing, and more and more people are coming to recognise the importance of a decentralised store of value.

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