Tesla’s announced $1.5 billion investment impact on Bitcoin?


February 15, 2022

Bitcoin is currently the cryptocurrency with the highest market value in the world. It was created in 2009 by Satoshi Nakamoto and officially launched the Bitcoin financial system.

Bitcoin is a whole new thing. Like the Internet, Bitcoin has a brand-new underlying technology, operating principle, and upper-layer application, and there has never been anything similar in history.

On February 8, Tesla announced an investment of $1.5 billion in Bitcoin, which had two effects on the Bitcoin market:

The first effect:

Popularized the payment market, and evolved from “Bitcoin can buy pizza” to “Bitcoin can buy Tesla”. It is conceivable that in the future, the payment market of Bitcoin may become more and more extensive, and it may be possible to purchase mobile phones, refrigerators, etc. This is the biggest progress of Bitcoin, and it also strengthens the actual payment value of Bitcoin as an electronic currency.

The second effect:

Tesla’s investment in Bitcoin has a demonstrative role and will guide other companies to invest in Bitcoin. Bitcoin, as a future asset, has been used as a company reserve. The future world assets will definitely be digital, and the digital assets in the future world will definitely be decentralization. The first to bear the brunt of the decentralized assets is Bitcoin.

Bitcoin has plunged again and again, and it has plunged by more than 80% twice in history. Will history repeat itself?

Affected by the geopolitical tensions in Ukraine, the price of bitcoin has been falling and falling since Russia announced its withdrawal on February 16, but in the long run, whether the incident tends to be resolved successfully or the conflict escalates, bitcoin has the potential to “recover lost ground”. If there is a local war in the future, Bitcoin will not rule out a short-term upward trend.

However, in January, when the cryptocurrency plummeted, trading volumes also shrank significantly. According to a CryptoCompare report, total spot trading volume fell to $1.8 trillion in January, down more than 30% month-on-month. This was the lowest volume since the end of 2020.

Ed Hindi, chief investor and co-founder of Tyr Capital, said: “This is a very light, scary, and uncertain time for cryptocurrencies. As people say, smart money doesn’t sleep and it doesn’t take vacations. But cryptocurrencies Retail investors in the market do take breaks, especially with injuries."

Last year’s surge in cryptocurrencies had a very positive money-making effect, with a surge in jobs at startups and other eager companies, and an influx of venture capital.

Hany Rashwan, co-founder and CEO of 21Shares, said in an interview with the media that with many cryptocurrencies falling by 50% or more in just a few months, the industry’s Companies have become much more cautious about implementing expansion plans; 21Shares, which offers exchange-traded products that invest in cryptocurrencies, manages about $2.5 billion in assets.

“We expect wide volatility in 2022, limited to intraday YTD levels, with downside risks to Bitcoin in 2023 if the Fed continues to normalize policy in a ‘standard’ 2-year tightening cycle bigger," said Barry Bannister, an analyst at Stifel Investment Advisors.

He also pointed out that Bitcoin still has a lot of room to fall and is currently facing three major macro headwinds affecting its price. These include the global money supply, 10-year Treasury yields, and the equity risk premium for the S&P 500, the Fed’s plans to tighten monetary policy in the form of interest rate hikes and balance sheet shrinkage.

The Bitcoin bull run is closely related to a process called halving, which happens every few years. “If past price cycles are any indication, Bitcoin may not see another bull market until late 2024 or early 2025,” Huobi co-founder Du Jun said in an interview with the media.

Halvings are written into Bitcoin’s underlying code and cut in half the rewards so-called miners receive for validating transactions on the cryptocurrency network. It happens about every four years.

The last halving took place in May 2020, and in 2021, Bitcoin broke out to a new all-time high above $69,000. A similar situation happened during the 2016 halving. The following year, Bitcoin reached its then all-time high of around $19,000.

How much is Bitcoin likely to fall? Bitcoin price first peaked on November 29, 2013, at $1,137, and just a year later, on January 14, 2015, it fell 84 percent to $183.

This pattern was repeated 4 years later: a peak of $19,041 was reached on December 17, 2017, and a bottom of $3,204 was seen a year later, a cumulative decline of 83%.

If this historical pattern is accurately reproduced, the price of Bitcoin, which reached an all-time high of 69,040 in November 2021, will fall to a low of $11,515 in November this year, an 83% drop from its peak in November last year.