Why Bitcoin Will Hold the $40,000 Level

Bitcoin volatility is intensifying again. The Federal Reserve’s policy change is inciting greater market panic. The Fed’s minutes suggest that inflationary pressures are of greater concern than originally thought.

Previously, bitcoin investors thought stock market panic would not spread to coin prices. But Bitcoin investors also hold stock. To offset losses, they may sell Bitcoin to raise cash and meet margin calls. The correlation between stock markets and bitcoin may ease after the Bitcoin Conference in Miami, Florida.

At the conference, speakers may reason that Bitcoin is a hedge against inflation and the U.S. dollar as a reserve currency. This is a tough argument to support. The U.S. dollar is widely used globally. Bitcoin and other cryptocurrencies are not as widely available. Cryptocurrency price volatility also adds to the uncertainties. Despite that, as small countries like El Salvador accept Bitcoin as legal tender, it will raise the coin’s profile.

China’s adoption of a Yuan cryptocurrency sends a mixed signal. The country banned Bitcoin mining last year and yet it is embracing a domestic cryptocurrency. In the long term, Bitcoin is widely available, whereas domestic usage of Yuan cryptocurrency in China will limit its value.

At an equilibrium, Bitcoin has a good chance of holding the $40,000 level.