Between the decisions of the Federal Reserve and The Merge, the next event long awaited by the community, what are the elements that could make the cryptocurrency market go up?
For the past few months, the cryptocurrency market has entered a so-called “bear” market phase, also called a bear market. This is not the first time: the market, very volatile, has already experienced many falls in recent years, particularly in 2012, 2015-2016, and in 2018-2019. The crypto-crash of 2022 seems to be the most violent bear market for the cryptocurrency ecosystem, as Glassnode recently recalled in a note.
After each fall, the cryptocurrency market went up the slope, with the disappearance of certain cryptocurrencies that were too fragile and the confirmation of certain other cryptocurrencies or players in the ecosystem. Bitcoin, which remains the queen of cryptocurrencies in terms of capitalization according to data from Coinmarketcap ($391 billion), reached an all-time high in November 2021, at $69,000. At the time of writing this paper, it is close to 20,000 dollars, weakened by two recent crypto-crashes. Will he be able to climb the slope and drag the entire market into a “bull” market (bullish market)?
According to a CoinTelegraph article, five things could end the bear market situation.
• Fed decisions
This is no longer a surprise: for several months, bitcoin – which generally drags all cryptocurrencies down or up – has been increasingly correlated with traditional financial markets (mainly the Nasdaq), which react to central bank announcements.
Indeed, tech stocks and cryptocurrencies are among the most sensitive assets to central bank policies, and in particular the US central bank (the Fed). Overall, over the years 2020 and 2021, there was strong liquidity in the markets injected by central banks to support economies in the midst of a pandemic.
This caused the cryptocurrency and Nasdaq market to rise as well as other risky assets. But the year 2022 is different and the economic context has changed: the Fed has indeed started to raise its rates (0.5% and 0.75%) to fight against inflation.
Faced with the tightening of monetary policy by the US central bank, investments in the riskiest assets are down. There is less money in circulation in the financial markets, and this penalizes the Nasdaq and therefore cryptocurrencies.
On July 26 and 27, it will also make its decision on a further increase in interest rates, which will in fact have an impact on the price of cryptocurrencies.
• The adoption of bitcoin by major powers
Another macroeconomic phenomenon is linked to the adoption of bitcoin as legal tender in certain countries, such as El Salvador and more recently the Central African Republic.
“Its adoption by such small players on the world stage has done little to promote broader acceptance. That would likely change, however, if a larger market like Japan or Germany opened up to the official promotion of the use of BTC by their citizens for their daily purchases”, underlines the media.
The major international powers are thinking more about the launch of a central bank digital currency (MDBC) rather than an adoption of bitcoin.
• The integration of cryptocurrencies as a means of payment
According to Coinmap data, 29,700 businesses currently accept bitcoin worldwide. However, there are still few major American brands that accept this type of payment like Paypal, Subway, or Cupa Cafe.
“While there are options to access value held in crypto, such as debit cards and online payment integrations with platforms like Shopify, the ability to make purchases by transacting directly on a network blockchain is relatively limited. It is likely that the integration of crypto payments by a large company like Amazon or Apple could trigger a bullish wave”, considers CoinTelegraph.
• Ethereum event: The Merge
There is a highly anticipated event within the crypto ecosystem, known as The Merge (see our article on this subject), which should take place by August.
In concrete terms, the Ethereum blockchain (which has its own currency, ether, the second currency in terms of capitalization after bitcoin) would go from a so-called “proof of work” process to that of “proof of stake” (proof of stake). Such a change would not only mean that ether will no longer result from a so-called mining process in the same way as bitcoin to be put into circulation, but this new process will also be much less energy-intensive. Likewise, such a change should reduce the emission of ethers in circulation, which would imply that with a limited quantity, the demand for ether could be higher.
So far, the transition process, which has been in the works for years, has been postponed for several months. The community hopes that it will indeed take place in August, as announced by Ethereum boss Vitalik Buterin.
“It is possible that the hype around The Merge could help pull the crypto market out of its bearish state if the transition goes smoothly, especially if it contributes to greater scalability and a faster user experience,” considers CoinTelegraph.
• The creation of a bitcoin spot ETF
Another event put forward, that of the creation of an ETF (Exchange Traded Funds) said bitcoin spot on the American markets. As a reminder, an ETF is an index fund trading on the stock exchange which follows the evolution of a stock market index (or of one or more financial assets, such as gold) by replicating the rise as well as the fall in the price. of this index (or of these assets).
Proposed in 2017, this type of project has so far never come to fruition.
“The reasons for this rejection generally revolve around the accusation that the cryptocurrency markets are easily manipulated and that the appropriate safeguards are not in place to protect investors. If a spot ETF were to be approved, it would make this longstanding moot objection and would bring a new level of legitimacy to bitcoin and the crypto asset class as a whole,” the outlet said.