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The coming of a new Covid Variant has pushed Bitcoin and several risky assets to the bear market. When the price of the asset type goes down by 20% from its recent highs, it is assessed to have entered the bear market. Several other cryptocurrencies have also plunged. The price swings of more than 10% in a day makes BTC a highly volatile asset.
Cryptocurrencies are said to provide hedge against inflation and also it works as a store of value. The new CoVid Variant B.1.1.529 is scaring investors away. Rising inflation and eroding demand and subduing consumer sentiments due to restrictions induced by the pandemic – The Covid crisis has led to wide differences in consumption patterns. Increase in wholesale prices is pushing retail prices to highs, thus discouraging consumption.
For clarity, hedge is an investment that is made with the intention of reducing the risk of adverse price movements.
Inflation is the rate of increase in prices and products over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.
Store of value store of value is essentially an asset, commodity, or currency that can be saved, retrieved, and exchanged in the future without deteriorating in value.
Investors who put their money trusting that Bitcoin would save their value are now confused about their decision. The Co-Vid 19 crisis is further demotivating. This is indeed forcing investors to ultimately cash out their investment in Bitcoin.
More so, in countries like India where Bitcoin and cryptocurrencies are not recognized by the government, Finance minister Nirmala Sitharaman stated that their Central government does not have plans to accept Bitcoin as a legal tender in the country.
However, there has been a contrasting approach from El Salvador and it is well known that it is a legal tender there already.
Reportedly, it has been seen that Turkish Bitcoin holders are avoiding an accelerating currency collapse as the lira lost nearly 15% versus the U.S. dollar in a single day.
Hedge is true, inflation is true, store of value is true, but different investors from different countries have a different approach to the way they look at Bitcoin.
The story of Venezuela needs no explanation. Just like Turkey that is unofficially fighting a currency crisis, there are several small nations already approaching such a trend. Whether it will be really “good luck” escaping inflation with Bitcoin is something that time should unveil.
