Between the decisions of the Federal Reserve and The Merge, the next event that society has long been waiting for, what are the elements that can make the cryptocurrency market go up?
In the last 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 declines in recent years, including in 2012, 2015-2016, one in 2018-2019 and one currently. But the cryptocurrency crash of 2022 appears 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 actors in the ecosystem. Bitcoin, which remains the queen of cryptocurrencies in terms of capitalization, according to data from Coinmarketcap ($ 391 billion), reached a record high in November 2021, with $ 69,000. At the time of writing this paper, it is close to $ 20,000, weakened by two recent crypto crashes. Will he be able to climb the slope and pull the whole market into a “bullish market”?
According to an article by CoinTelegraph, 5 elements could put an end to the bear market situation.
This is no longer a surprise: for several months, bitcoin – which generally drives all cryptocurrencies down or up – has been increasingly correlated with traditional financial markets (primarily Nasdaq), which respond to central bank announcements.
In fact, technology stocks and cryptocurrencies are among the most sensitive assets to central bank policies, and in particular the US Federal Reserve (Fed). Overall, in the years 2020 and 2021, there was strong liquidity in the markets, which was supplied by central banks to support economies in the midst of a pandemic.
This caused the cryptocurrency and Nasdaq market and other risky assets to rise. But the year 2022 is different, and the economic context has changed: the Fed has actually started raising its interest rates (0.5% and 0.75%) to fight inflation.
Faced with the tightening of monetary policy by the US Federal Reserve, investment in the most risky assets is declining. There is less money in circulation in the financial markets, and this penalizes Nasdaq and thus cryptocurrencies.
On 26 and 27 July, it will also take its decision on a further rate hike, which will actually 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 a legal tender in certain countries, such as El Salvador and more recently the Central African Republic.
“Its adoption of such small players on the world stage has not done much to promote wider acceptance. However, that would probably change if a larger market such as Japan or Germany opened up to the official promotion of the use of BTC by their citizens for their citizens. daily purchases, ”the media emphasizes.
The major international powers are thinking more about the launch of a central bank’s digital currency (MDBC) rather than an adoption of bitcoin.
- The integration of cryptocurrencies as a means of payment
According to Coinmap data, 29,700 companies currently accept bitcoin worldwide. However, there are still few major US brands that accept this type of payment like Paypal, Subway or Cupa Cafe.
“While there are opportunities to access value stored in crypto, such as payment cards and online payment integrations with platforms like Shopify, the ability to make purchases by trading directly on a network’s blockchain is relatively limited. Cryptocurrencies of a large company like Amazon or Apple could trigger a bullish wave “, believes CoinTelegraph.
- Ethereum Event: The Merge
There is a much anticipated event in the crypto ecosystem, known as The Merge (see our article on this topic), which was to take place in August.
Specifically, the Ethereum blockchain (which has its own currency, ether, the other currency in the form of capitalization after bitcoin) will go from a so-called “proof of work” process to “proof of effort” (proof of effort). Such a change would not only mean that ether would require more of a so-called mining process in the same way as bitcoin to go into circulation, but this new process would also be much less energy intensive. Likewise, such a change would reduce the emission of ethers in circulation, which would mean that with a limited amount, the demand for ether could be higher.
So far, the transition process, which has been in the cards for years, has been postponed for several months. The community hopes it will actually take place in August, as announced by Ethereum CEO Vitalik Buterin.
“It is possible that the hype surrounding 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,” says CoinTelegraph.
- The creation of a bitcoin spot ETF
Another event highlighted the creation of an ETF (Exchange Traded Funds) known as the bitcoin spot in the US markets. As a reminder, an ETF is an index fund that trades on the stock exchange, following the development 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 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 refusal are generally the accusation that the cryptocurrency markets can be easily manipulated and that the appropriate safeguards are not in place to protect investors. If a spot ETF were approved, it would make this lengthy controversial objection and would bring a new level of legitimacy for bitcoin and the cryptocurrency class as a whole, ”said the outlet.