We’re in the middle of a Crypto Winter, right? Well, not exactly. According to our analysis of historical data on token prices and market capitalization, we believe that the cryptocurrency market is at its lowest point in the first quarter of 2022 but will start a slow recovery thereafter. Read on to find out why we think this way and what it could mean for the crypto ecosystem as a whole.
It Ain’t Pretty, But It’s Going to Get Better
Bitcoin dipped below $20,000, Ethereum lost over 50% of its value, and various coin offerings have all but dried up. Miners fall like dominos, and crypto lenders throw in towels like there’s no tomorrow, literally. The bear market has been relentless, leading many to believe this is the end of the road for crypto. But is it really? Let’s take a look at the current state of the crypto market and where we believe it’s heading in the next 12 months. We’ll focus on the market conditions at the end of Q4 2022 and determine where we see things headed.
The Lowest Point in Q1 2022
We believe the crypto market has already bottomed out in Q1 2022 and will start a slow and steady recovery thereafter. Here are three reasons why we think so:
Increased institutional interest
In the past few months, we’ve seen an influx of institutional investors entering the space. From hedge funds and family offices to pension funds and Endowments, mainstream financial institutions are taking notice of cryptocurrency. And they’re not just buying Bitcoin; they’re also investing in Ethereum, Litecoin, Monero, Dash and a host of other altcoins.
Positive regulatory developments
Another tailwind for the crypto markets is positive regulatory developments around the world. We’re seeing more and more countries taking a supportive stance toward cryptocurrency and blockchain technology. For example, Japan has recognized Bitcoin as a legal form of payment, Switzerland is looking to create a cryptocurrency-friendly environment and even South Korea, which previously cracked down on crypto trading, has changed its tune and is now looking to embrace digital assets.
Favorable technical indicators
From a technical analysis perspective, there are several indicators that suggest that the worst is behind us. For one, Bitcoin’s 200-day moving average has held firm throughout this bear market; secondly, Ethereum’s MACD histogram has turned positive after several months in the red; thirdly, Litecoin’s RSI is well above 30, which suggests that it’s no longer oversold; finally, Monero’s price action has formed a bullish pennant pattern which typically signals an upswing.
So, what do we have now?
It’s been a fairly brutal quarter. From the market-wide crash in March to Bitcoin’s (BTC) price drop to $22,500 in August, digital assets have shown both their resilience and volatility. Unfortunately, October has been a tough month for crypto, with BTC shedding almost 20% since the beginning of the month. Altcoins have fared even worse, with Ethereum (ETH) down 30% compared to August. With economic uncertainty swirling and inflation rising, is there any reason to be optimistic about cryptocurrency in November and beyond? Here are three potential headwinds that could make it another tough month for digital assets.
The U.S. Dollar Could Continue to Strengthen
One of the key drivers of cryptocurrency prices is the U.S. dollar. When the dollar weakens, BTC and ETH tend to rise as investors seek an alternative store of value outside of traditional fiat currencies. But the dollar has been on a tear lately, hitting new two-year highs against a basket of major currencies. The strong dollar is being driven by safe-haven demand as investors flock to the greenback amid economic uncertainty. This trend could continue in November if data continues to point to a slowing global recovery from the coronavirus pandemic.
Interest Rates Could Rise
Rising interest rates are also bad news for BTC and ETH prices. Increased rates make holding cryptocurrency less attractive because it reduces the opportunity cost of holding a non-yielding asset like BTC or ETH. With central banks worldwide still maintaining ultra-loose monetary policies, interest rates are not expected to rise significantly soon. However, if inflation unexpectedly accelerates or asset prices continue to soar, we could see central banks start to tighten monetary policy sooner than expected, which would put upward pressure on rates and put downward pressure on crypto prices.
Regulatory uncertainty could return
In terms of the regulatory climate, things are looking much brighter today compared to 2018 and 2019, when there was constant uncertainty about whether or not crypto assets would be banned outright in major markets like China and India. However, regulatory risk could return to haunt digital asset investors in November if powers that be take new steps to crack down on cryptocurrency trading and ownership. While radical action is unlikely, even rumors of tighter regulation could send shockwaves through cryptocurrency markets and trigger yet another sell-off.
It’s official, folks. The long-awaited merge is finally complete, and Ethereum is now a proof-of-stake protocol. But instead of the celebratory price increases we were hoping for, Ethereum prices have tumbled 18% since the news was announced. For now, it looks like investors are viewing the transition as a “sell the news” event.
Back in July, Ethereum prices soared 32% in anticipation of the upcoming merge. But the move appears to have been driven mainly by speculation. Since then, Bitcoin prices have actually declined 2.8%, while Ethereum has tanked 18%. We attribute this to the fact that many investors are concerned about Ethereum’s scalability issues and high transaction fees – neither of which will be addressed by the move to proof-of-stake.
For now, it looks like Ethereum will continue to lose market share to competing altcoins such as Tron (TRX), Avalanche (AVAX) and Solana (SOL). These protocols offer faster transaction times and lower fees – which are very important to DeFi enthusiasts and Web3 developers. However, it’s important to remember that Ethereum is still the most widely used blockchain in the world. So, while it may be losing ground to some up-and-coming protocols, it’s still got a very solid foundation.
All in all, it’s too soon to tell if this is just a temporary dip or if Ethereum will continue losing market share to competing altcoins. However, one thing is sure – Ethereum is still the most widely used blockchain in the world and has a rock-solid foundation. So, while there may be some bumps in the road ahead, I remain confident that Ethereum will continue to be a major player in the crypto space for years to come.
While there are some potential headwinds that could make October another tough month for cryptocurrency, there are also some tailwinds that could help digital assets recover some of their recent losses. One key factor to watch will be safe-haven demand as investors seek refuge from economic uncertainty and volatile markets., Another key factor will be central bank policy as any unexpected changes could impact both interest rates and the value of fiat currencies. Finally, keep an eye on regulatory developments as they could provide some much-needed clarity – or create more uncertainty – for digital asset investors around the world., Investment strategy should always Match your investment horizon with your goal; remember that you can afford more risk when you have more time horizon.