Over the past six months, Bitcoin has systematically destroyed the main myths about its suitability in various macroeconomic situations. However, as the cryptocurrency declined to local lows, the market saw that BTC is not a competitor to gold as a hedge against inflation. The situation with UST and the Luna Foundation showed that it is dangerous to use the main digital asset as a reserve fund due to the high probability of a sharp decrease in liquidity. However, after updating the local low at $25k, the asset began to recover and the first signals appeared that BTC is returning to the global economic arena as a hedge against inflation.
This statement was made by the head of the EU regulatory body and noted the growing demand for cryptocurrency due to a surge in inflation in the Commonwealth. The specialist also outlined the growing demand for BTC in Argentina and Turkey. Due to the excessive devaluation of the national currency, more and more people are forced to store their funds in Bitcoins in order to avoid even greater losses against the backdrop of rising global inflation. Due to the high level of national inflation, Argentines and Turks take the lead in blockchain and digital asset awareness. However, it is important to understand that in the current situation we are talking about local regulated markets, where Bitcoin is a lesser evil, and not a saving asset.
However, EU representatives used the situations in Turkey and Argentina as an example of what happens to investors when the ratio of inflation and correction of Bitcoin makes cryptocurrency a better investment. In May, monthly inflation in the EU reached 8.1%, according to preliminary data on the growth of consumer prices. This could provoke a flight of institutional and retail investors into cryptocurrencies. The change in the situation is mainly seen in the weekly reports on investments in crypto funds. According to the latest report, more than 70% of all investments were in BTC, which is directly related to the rising inflation rate. Ethereum, which was in second place in terms of investments, also has a deflationary component, and therefore also turned out to be in demand.
These factors indicate that the markets are beginning to recover from the absolute psychological and investment bottom that was formed in May. It is not necessary to say that in the coming weeks investment flows in Bitcoin will increase significantly, but, on the other hand, we see a change in the priority of investors. The pace of inflation and the general tense situation suggest that large and retail players are ready to opt for digital assets over traditional funds. Even despite the obvious bear market.
This is evidence of record inflation and geopolitical processes that are forcing the economy to stagnate. Venture investors also understand this, as mentioned by JPMorgan. And this suggests that Bitcoin is becoming an increasingly attractive asset amid rising inflation and geopolitical tensions.
This does not mean that in the near future we are waiting for the emergence of an upward trend. Liquidity in the markets is getting smaller, and after the launch of the program to reduce it, only US dollar-related assets will start an upward trend. At the same time, there are more and more factors indicating the restoration of fundamental interest in cryptocurrencies. This is definitely happening against the backdrop of a decrease in volatility and stabilization of the exchange rate. There is no doubt that in the medium term it is worth waiting for the active phase of accumulation and the transition of BTC to a wide range of $30k–$40k.
As for the current situation, Bitcoin will continue to fluctuate within a narrow range of $29k–$31.5k. The coin made a false breakout of the $31.5k level and failed to leave this range. The price twice reached the $32.2k level, but both times the buyers capitulated. This indicates the weakness and unpreparedness of the market for an upward movement.
Demand is just starting to recover, and as the volume of BTC coins on the exchanges decreases, it will grow. But even under such conditions, the main target of the asset in the short term will be to go beyond the current range of $29k–$31.5k and start implementing a medium-term strategy with consolidation in the $33k–$35k area. For more ambitious targets, the asset lacks liquidity and fundamental demand.