Bitcoin is the world’s largest cryptocurrency by market capitalization, far ahead of the altcoins. Its importance for the digital finance market cannot be overstated. When Bitcoin is doing well, so does the rest of the crypto environment, and when it struggles, so do the other tokens. While the last year came with several challenges for the world of cyber money, 2023 brought in renewed hope and engagement. Investors started looking for where to buy Bitcoin again. Adding digital assets to their portfolios means that the investors can diversify their list of holdings and ensure better returns.
However, the current economic situation is still keeping investors on their toes. The spikes in interest rates in the United States, as well as the enduring inflationary pressures, cannot create a safe macroeconomic environment for asset development. The regulatory pressures have created a lot of uncertainty in the crypto ecosystem as well. Investors are unsure of which strategies they should adopt in order to secure their portfolios, especially considering how the market is recovering at a much slower rate than initially predicted.
It seems now that the crypto world will have to deal with a new wave of economic uncertainty as world markets have started selling off. Bitcoin fell by more than 7% on August 17th, its most significant drop since November 2022, when a major exchange collapsed, creating panic for investors and leading to substantial capital loss. The price slide undid much of the gains Bitcoin recorded since June, and many immediately placed the responsibility on SpaceX, who did a write-down of its crypto holdings and subsequently sold them. Elon Musk has long been influential among digital finance enthusiasts, and prices have previously moved as a direct response to his claims, as well as plans and projects that were to use crypto at Tesla but ultimately didn’t.
However, many believe that the situation isn’t so simple and that there isn’t a single fundamental aspect that created the conditions for this price drop. Bitcoin has stagnated for a while, hovering close to the $30k milestone for months. Although it has recovered quite a lot of its value, investors were expecting a more consistent bullish run. Yet BTC failed to gain momentum, and prices floundered. Many investors have incurred significant losses as a result.
Many are also concerned that this will ultimately affect the SEC ruling on ETFs and lead to a negative outcome for the asset class. Although they have been approved by an exchange platform in the EU, investors in the USA are still waiting for the green light, with the official decision postponed to the first months of 2024 after the initial date of August 13th didn’t yield any results.
At the center of the fears for a sell-off event of global proportions is the fact that the country’s economic situation hasn’t been the best in quite a while. After three years of lockdown during the pandemic, many expected the nation to bounce back and quickly recover all of its losses. But recent analysis points in a different direction, showing that industrial output, investments and retail have all grown at a much slower rate than expected.
China’s official growth target was around 5%, but it seems that the realized values were closer to 3%, less than half of the average figures from before the pandemic. The consumer inflation rate was flat in June, and factory-gate pricing continued to fall. The concerns about a possible deflation began to mount, leading to a spiral that can affect the economy quite severely due to the continuation of downward price points.
This is a problem not just for China itself but for the world as well. Much of the global production and jobs depend on China. The country has a vast market which is vital for the economic security of countries from all over the globe. African exporters are likely to be hit quite hard. Zambia sold $1.64 billion worth of copper to China in 2021, or 70% of the nation’s exports. The DRC sends half of its exports to mainland China, over 90% including cobalt, refined copper, ores or concentrates.
In China, the prices of essential commodities like iron ore or steel fell as demand didn’t pick up as expected. The situation is affecting high-tech products first and foremost. Shipments from Taiwan and South Korea have been dropping by double digits every month since the beginning of the year. Since income and jobs remain uncertain in many cases, and the youth unemployment rate appears to have reached new all-time highs, Chinese people are also less inclined to travel abroad. This, in turn, hurts the countries that are dependent on tourism and which welcome many Chinese visitors each year.
The situation isn’t better for the United States either. The US has been dealing with steep inflation and was at risk of defaulting on its debt back in May. This event, which would have had dire global consequences, was narrowly averted, yet the threat remains. Interest rate hikes continue to mount, and the country has reached the highest level in this area that it has seen in twenty-two years. Considering that China and the US are economic powerhouses, if they were to go into a slump at the same time, it would have a very negative impact on everybody.
Why it matters
These possible meltdowns will naturally leave their mark on a global scale. The cryptocurrency market has been gradually entering the world of traditional finance. While this is a positive thing since it means more exposure, it has also created the conditions for an environment that’s more susceptible to external influences. The introduction of the ETFs, while hugely anticipated by the Bitcoin community, might deepen the risks since the transactions operate in a centralized environment.
The world is following the events, looking to see how things could improve or worsen. For cryptocurrency investors, it’s more important than ever to remain vigilant. It doesn’t take much to wreck your portfolio during times like these, and that’s the last thing you want.