Many investors are taking a closer look at Bitcoin (CRYPTO: BTC) as it faces unchartered territory.
The potential of rising interest rates is a phenomenon that cryptocurrencies have not yet seen in their existence. Though, it is looking more likely after the United States consumer price index hit a staggering 7.5% year-over-year increase last night.
Today, the Reserve Bank of Australia (RBA) has acknowledged the surprisingly hit figure. RBA Governor Philip Lowe responded by recognising that a rate increase this year may now be 'plausible'.
Despite this, recent research from JPMorgan suggests there could still be a pathway to new all-time highs for Bitcoin.
So, where could Bitcoin be heading from here?
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Short term pain before a long term gain
In the past week, the price of Bitcoin has rallied nearly 17%, recuperating some of the ground lost between November and January. However, in a recent report from JPMorgan research analyst Nikolaos Panigirtzoglou, there could be more downside in the short term.
According to the report, Bitcoin should be fairly valued at around US$38,000. Interestingly, the analyst bases this on a comparison of volatility against gold.
Panigirtzoglou highlights that because Bitcoin is four times more volatile than the precious metal, its price target is US$38,000. Moreover, if the cryptocurrency was able to reach parity to gold on a volatility basis, then its fair value would be US$150,000.
As such, the analyst applied a long-term price target of US$150,000 on Bitcoin. Although, this would be reliant on it gaining more mainstream acceptance — an outcome that would presumably reduce volatility.
Is Bitcoin correlated with other investments?
Cryptocurrency advocates have long touted cryptocurrency — namely Bitcoin — as an uncorrelated asset class. Essentially, this means its performance is relatively untethered to other investments such as shares, real estate, etc.
More recently, the behaviour of the long-standing cryptocurrency has started to resemble that of tech shares. In the chart below, Bitcoin moved counter to the S&P/ASX All Technology Index (ASX: XTX) back in March 2021.
However, the pair began moving more synchronously in November last year.
Nonetheless, some crypto experts believe the correlation will be short-lived. Bitcoin strategist at Validus Power Corp, Greg Foss, reckons the similarity in performance will separate in the future.
Foss said:
Bitcoin eventually will be viewed as insurance and, therefore, will de-correlate from the rest of the assets.
