FX.co ★ Bitcoin's volatility makes it more attractive inflation hedge than gold

Bitcoin cannot go beyond a wide range of fluctuations and resume growth due to the passivity of institutional investors. It was this category of users that caused the bullish rally of the cryptocurrency to $69k. However, the situation may change in the future, as the economic stimulus program is being curtailed, which means that the inflation rate will also fall. At the same time, there is an assumption that the digital asset will be of interest to institutional investors as a protection against inflation, regardless of the Fed's policy.

The main reason why large companies prefer bitcoin to gold is its volatility. This opinion was expressed by Lunar Digital Assets CEO Roc Zacharias. The entrepreneur does not see a problem in the high level of volatility of an asset, but on the contrary, believes that volatility is the main parameter determining the value of an asset. Zacharias believes that investors who protect their funds in bitcoin get richer, while the profit from trading gold is minimal.

This is a rather unpopular opinion since bitcoin volatility is considered to be the main problem of the asset. There is a grain of truth in the words of the entrepreneur, which is confirmed by Tesla's reports. It is the high level of volatility of crypto quotes that allows large capital to preserve and multiply capital during inflationary explosions.

However, the excessive volatility of the coin makes it unpredictable, and therefore slows down its adoption. JPMorgan experts stated that the volatility of the cryptocurrency hinders its daily use and development as a class asset. It is the vulnerability to sudden fluctuations in value that is an important argument of the SEC when refusing to approve a spot ETF.

At the same time, there is a tendency that with a decrease in the volatility of BTC, its adoption as a class asset is significantly accelerated. This confirms the investment interest of several large U.S. pension funds during a period of relative calm. I see a certain dissonance here, where bitcoin cannot be of interest to institutions as a means of protection against inflation if its volatility decreases.

Moreover, a decrease in the price volatility index will not allow maintaining the constant interest of large companies. I see the solution as a compromise in which the volatility of the coin decreases, but at the same time, the degree of variability remains high enough to compete with gold. The main obstacle to achieving this compromise may be the lack of balance, and therefore one of the parties will still have to receive less benefit from cryptocurrency transactions.

It is also important to note that it was the increased volatility caused by the overheating of the futures market that provoked a powerful drop in the price of bitcoin. As a result, the coin has been fluctuating in a wide range of $42k-$50k for the second week, and as of 14:30 UTC, it shows no signals to increase. On the daily chart, we see a slight advantage of the bears, who have formed two confident red candles over the past 7 days.

At the same time, the bulls' positions are becoming more confident due to the active absorption of volumes. But the absorption is not accompanied by actions, and therefore the repurchase of positions is slow and the price continues to fluctuate from the local support level to the local resistance level.

Technical indicators on the daily chart move strictly in the flat direction, which indicates that the current dynamics of price movement is maintained. But I want to draw attention to the fact that BTC quotes have tested the support zone around $45.8k three times. According to the old but working market rule: the more often the price tests the level, the more likely it is to break out further. Thus, let's wait for a decline in the area of $42k-$45k. And only after working out this range and collecting liquidity will bitcoin begin to fully recover.