Between the decisions of the Federal Reserve and The Merge, the next long-awaited event by the community, what are the elements that could drive the cryptocurrency market up?
In recent months, the cryptocurrency market has entered a so-called “bear” market phase, also called a bear market. It is not the first time: the market, very volatile, has already suffered many declines in recent years, in particular in 2012, 2015-2016, and in 2018-2019. The crypto crash of 2022 appears to be the most violent bear market for the cryptocurrency ecosystem, as Glassnode recently pointed out in a statement.
After each fall, the cryptocurrency market has risen, with the disappearance of some too fragile cryptocurrencies and the confirmation of other cryptocurrencies or players in the ecosystem. Bitcoin, which remains the cryptocurrency queen in terms of capitalization according to Coinmarketcap data ($ 391 billion), hit an all-time high in November 2021, at $ 69,000. At the time of writing, it is close to $ 20,000, weakened by two recent crypto-crashes. Will he be able to climb the slope and drag the entire market into a “bull market” (bull market)?
According to a CoinTelegraph article, five elements could put an end to 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, in 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 has caused a rise in the cryptocurrency market and the Nasdaq and other risky assets. But the year 2022 is different and the economic context has changed: the Fed has in fact started to raise rates (0.5% and 0.75%) to fight inflation.
Faced with the tightening of monetary policy by the US central bank, investments in riskier assets are declining. There is less money in circulation on the financial markets, which penalizes the Nasdaq and therefore cryptocurrencies.
On July 26 and 27, he will also make his 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 the great powers
Another macroeconomic phenomenon is linked to the adoption of bitcoin as legal tender in some 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 foster wider acceptance. That would likely change, however, if a larger market like Japan or Germany opened up to official promotion of use. of BTC by its citizens for their daily purchases ”, underline the media.
Major international powers are thinking more about launching a central bank digital currency (MDBC) rather than adopting bitcoin.
• The integration of cryptocurrencies as a means of payment
According to data from Coinmap, 29,700 companies currently accept bitcoins around the world. However, there are still few major American brands that accept this type of payment such as Paypal, Subway or Cupa Cafe.
“While there are options for accessing 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. The integration is likely. of cryptocurrency payments from 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 topic), which is expected to take place by August.
In concrete terms, the Ethereum blockchain (which has its own currency, the ether, the second currency by capitalization after bitcoin) would pass from a so-called “proof of work” process to that of “proof of stake”. Such a change would not only mean that the ether will no longer result from a so-called mining process in the same way as the bitcoin to be put into circulation, but this new process will also be much less energy-intensive. Likewise, such a change would reduce the emission of ethers into circulation, which would imply that with a limited amount, the demand for aether could be greater.
So far the transition process, which has been in the works for years, has been postponed for several months. The community hopes 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 cryptocurrency 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 highlighted event, that of the creation of an ETF (Exchange Traded Funds) known as bitcoin spot on the American markets. Recall that an ETF is an index fund traded on an exchange that follows the evolution of a stock index (or of one or more financial assets, such as gold), replicating both the rise and fall of the price. of this index (or of these assets).
Proposed in 2017, this type of project has never been carried out so far.
“The reasons for this rejection generally revolve around the allegation that 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 raise this longstanding objection and lead to a new level of legitimacy for bitcoin and the cryptocurrency class as a whole, “the outlet said.