We have seen analysts making technical posts about Bitcoin (BTC) price and how it could move in the coming months and years. However, we have not discussed the fundamental aspects of Bitcoin and which things we should take into consideration. There could be different events this year that could have a negative or positive impact on Bitcoin.
Indeed, fundamentals are usually something that is left behind and that chartists do not unusually take into consideration. But we have seen over the last few years how different events have been catalysts for fast market movements (bullish and bearish).
This is why we will be telling you everything you should know about fundamentals and how different events could change Bitcoin’s price path in 2022. There are different events that could impact Bitcoin and we will discuss them in the next few sections.
What are Fundamentals?
When we talk about fundamentals, we talk about things that could have an impact on the price of Bitcoin that cannot be seen in the charts. In traditional financial markets, fundamentals refer to different measures that could be taken into consideration in order to understand whether an asset is overvalued or undervalued.
Considering that Bitcoin is not a company and it is not linked to profits or revenues, it becomes more difficult to find things and standard measures to understand whether its price is overvalued or undervalued. Some of the measures include network hash rate, active wallets, inflows to and from exchanges, economic events and other types of political and geopolitical events.
Fundamentals have had a strong impact on Bitcoin over the last years. This is something that we have seen when cryptocurrency exchanges were hacked, when companies announced Bitcoin investments or when there was a political or geopolitical event that could have an impact on Bitcoin and cryptocurrencies.
These types of analysis cannot be conducted by having a look at the charts. Indeed, these are things that analysts would only be able to take into consideration if they leave the charts aside and start focusing on what could really happen to Bitcoin and virtual currencies by having a look at different indicators.
2022 could be full of events that could have an impact (positive or negative) on Bitcoin. It is always a good thing to analyze other aspects of the largest virtual currency and try to understand which could have an impact on the markets.
Which Events Could Affect Bitcoin?
We expect 2022 to be a year full of things that could have an impact on the price of Bitcoin and other virtual currencies. Nonetheless, our focus is going to be on Bitcoin rather than altcoins. We will discuss geopolitical issues as well as macro-economic events and trends.
These events will let us understand whether Bitcoin could move higher or lower depending on the event. In this post, we focus mostly on issues that could press Bitcoin’s price lower. Despite that, you should know that there could be other events that could push Bitcoin higher in the future as well.
Top 1 – Geopolitical Conflicts
Let’s start with geopolitical conflicts that could end with open wars between some of the largest military superpowers in the world. Over the last thousands of years, gold worked very well as a store of value during periods of crisis. However, it had some limitations, including its difficulty to be transported or moved across borders.
Bitcoin is different, but it has not yet experienced a full-scale military conflict between superpowers. Of course, we expect nothing will happen. We would not want to see war, however, a military event could be negative for Bitcoin.
Two of the possible geopolitical risks that we should take into consideration for 2022 and the future include a conflict between Russia and Ukraine and/or China and Taiwan.
Russia and Ukraine
Let’s start with the conflict between Russia and Ukraine. We know that these two countries have had a difficult relationship for several centuries now. But what could happen in 2022 and how could this affect Bitcoin?
First of all, Ukraine and Russia could go to war. The eastern parts of Ukraine (Luhansk and Donetsk) have been taken by Russian separatists that would like to have their own independent government in these two regions.
However, throughout the last months of 2021 and early 2022, Russia has been increasing its military presence close to the border with Ukraine. From the north (in Belarus), from the east (getting closer to the boundary with Ukraine next to Donetsk and Luhansk) and from the south (in Crimea).
This has created a diplomatic conflict that involved not only Ukraine and Russia but also other countries such as the United States, the Baltic nations, France, Germany and Spain, among others. NATO has also shown that it is worried about the recent military escalation between Russia and Ukraine.
This conflict has an impact on Bitcoin. We have seen that when negative comments about the current situation in the boundary between Russia and Ukraine were made, Bitcoin fell. For example, when reports about explosions and shelling close to Donetsk and Luhansk were reported, Bitcoin moved downwards.
This could be just a sign of what could eventually happen if there is a full war between these two countries and/or other nations. The whole market could move downwards, which would not be good for Bitcoin at all. There have also been some reports about Russia being disconnected from SWIFT, but this possibility seems not one of the main dissuasive tools for Western countries.
China and Taiwan
The tensions that have been growing between Russia and Ukraine are definitely not the only possible military conflict that could spark a larger war between major economies. Indeed, there is another issue that is currently being built in the South China Sea.
A crisis between China and Taiwan that could scale to a military conflict could involve other countries, including a direct clash between the United States and China, the two largest economies in the world at the time of writing this article.
Considering that Bitcoin has shown weakness during the ongoing Ukraine-Russia conflict, it is highly possible that the same would happen during a conflict between China and Taiwan and possible fears of the conflict spreading to other countries. The region is also close to other important countries: the Philippines and Japan, which have a deep impact on Bitcoin.
Therefore, there is clearly a fundamental risk for Bitcoin with these types of events that could take place in 2022 or in the future. Of course, a full-scale conflict between superpowers is highly unlikely but definitely a possibility. Hence, we take this into account when analyzing Bitcoin’s price weaknesses for 2022 and the next few years.
The conflict between China and Taiwan could also be extrapolated to other issues with other countries such as Israel and Iran or India and Pakistan. These conflicts where military powers test their strength could be certainly negative for Bitcoin’s price.
Top 2 – Growing Interest Rates
Let’s now move on with other types of issues that are not related to military actions. Now, we focus on economic events such as growing interest rates. We have seen that over the last few months, several central banks around the world have been raising interest rates.
This happened after two years in which governments printed large amounts of money trying to help companies stay afloat during the Covid-19 crisis that started in early 2020. Central banks printed money in order to help people that lost their jobs and to help companies that couldn’t operate during lockdowns.
In addition to printing money out of thin air to deal with government-planned lockdowns, countries conducted QE (quantitative easing). Basically, through QE, central banks purchased bonds and financial assets to inject money into the economy.
But this was not all, interest rates have been in negative territory for several years now. Indeed, with the expansion of inflation in recent months, credits become even cheaper for people that are trying to find a way out of spiralling inflation.
Inflation in the United States has reached the highest level in 40 years as inflation hit 7.5% in 2021. This is just one of the many examples of how inflation has been expanding around the world. Other countries registered even larger inflation rates over the last months. Some of these countries include Poland (9.2%), Brazil (10.4%), Turkey (48.2%), Argentina (50.7%) and Venezuela (472%). These countries represent 5% of the world population.
Interest rates are starting to move higher as governments see that inflation is skyrocketing and that economies are not growing. This is called stagflation. As interest rates move higher, capital that was allocated to high-risk assets (including Bitcoin) would start to move to safer assets (bonds). This outflow from Bitcoin to other assets is definitely bearish for BTC’s price.
It would be very important to see how high-interest rates go and whether this would have a strong capital outflow effect on Bitcoin in the coming months.
Top 3 – Supply Chain Issues
We also know that during the COVID-19 pandemic there have been issues with the supply chain. But why did this happen? This is closely related to the fact that there was an increase in the money supply while companies were forced to shut down. Moreover, investments have also been delayed for the future, which means that production has been affected by different bottlenecks.
With a larger demand for products from those that benefited from inflationary policies and a lack of investments from companies, supply chain issues started to appear. Moreover, lockdowns and employees on quarantine have also affected the normal functioning of ports, transport and other parts of the supply chain.
One of the industries that have been affected the most over the last few years is the semiconductor chip industry. This is extremely necessary for Bitcoin to continue to be on healthy growth. For example, semiconductors are used on mining rigs that make the Bitcoin network more secure.
If companies are not able to invest the necessary funds in research and investment in order to produce better and more energy-efficient chips, then there could be stagnation when it comes to mining hardware. This could be one of the measures to understand Bitcoin’s health (hash rate).
Another thing that could harm decentralization is related to the fact that those users that want to run a full Bitcoin node will find that there is a Raspberry Pi shortage and higher prices for SSD cards. Therefore, decentralization is becoming more difficult (more expensive and logistically more difficult).
Top 4 – World Economic Crisis
We have two more events that could affect Bitcoin’s price in the future. We are talking about an economic crisis and a hard fork event. When it comes to a world economic crisis, this is closely related to the Top 2 event in which we discussed the effect of growing interest rates.
A world economic crisis could become a reality in the near future, and this could definitely push Bitcoin prices lower. Why? Simply because during market crashes and economic downturns, Bitcoin tends to move lower. Usually, a bear market or crisis starts with traditional financial markets moving lower.
We have also seen that Bitcoin has been quite correlated with traditional financial markets in recent months. If an economic crisis starts in the near future, then Bitcoin will also be affected, at least at the beginning of the crisis.
It is always important for investors to be prepared for these types of events as this would help them avoid a massive loss. Nevertheless, during an economic crisis, it becomes quite difficult for people to keep their capital protected. In such an event, Bitcoin price would be severely hit.
Top 5 – A Hard Fork Event
Finally, a hard fork event is still a possibility. However, this is something that seems far from becoming a reality in the near future. Indeed, the Bitcoin community has been quite united over the last years and since the last hard fork attempts in 2017 and 2018.
This does not mean, however, that a hard fork will not happen in the future. A divided community in a moment in which Bitcoin is becoming the target of attacks from governments and regulatory agencies might not be the best thing to do.
If it happens, Bitcoin’s price could move downwards and be affected due to capital moving from one of the networks (the original one) to the forked one. Understanding that this event could take place in 2022 would be a great advantage for those investors that want to be prepared for any type of event that could affect Bitcoin’s price.