Will This Mini Crypto Bull Rally Continue?

Investors in the cryptocurrency market have had their first break from a bear market in months, as top assets like Ethereum, Lido, and Polygon increased by 50% after reaching recent lows. Many are hoping that this is the beginning of the bull market and that the Ethereum Merge will mark new highs, but this is likely not the case.

After months of terrible price action, the cryptocurrency market finally began to recover this past week. Ethereum, which was trading at lower than $1,000 a month ago is now up to a recent high of $1,500. Additionally, Bitcoin, traditionally one of the more stable cryptocurrencies, shot up from $19,000 to $22,000 recently. Altcoins are performing similarly well, with leaders like Lido up 131% over the past week. 

Some investors are contributing the recent rally to excitement behind Ethereum’s Merge. For those who are unaware, the Merge is the event that will mark a change in consensus mechanisms for Ethereum, from proof of work to proof of stake. This means that the energy consumption of Ethereum will be reduced by an estimated 99.97%, making it incredibly environmentally friendly. This is also one of the most significant events in the history of cryptocurrencies and has been in development for several years.

Even though the Merge is undoubtedly a significant event, it will likely not be enough to pull us out of this bear market for several reasons. First, the typical cryptocurrency bear-bull cycle has been around 4 years long. For example, the last major bull market in crypto was in 2017, ended in 2018, and then it took until 2022 for this bull market to commence. This has happened three times now, and such a sharp deviation from this norm is unlikely to be so drastic as to only have a 4-month bear market.

Secondly, large technological upgrades have failed to cause a spike in price for other assets. Most of the time, the promise of the upgrade has already been priced in by the market, and that could be the case with Ethereum. The Merge has been in development for several years and has been delayed several times, meaning that anyone who is wanting to buy Ethereum before the Merge has already done it. This is a massive milestone for the cryptocurrency industry but may not cause so much general excitement in the public as to pull the $1-trillion market out of a bear pattern.

Finally, the macroeconomic environment is not ideal for cryptocurrencies. Around the world, countries are anticipating and preparing for a correction or possible recession, and the economy is in a more perilous place than it has been since the creation of Bitcoin in 2008. With these new macroeconomic conditions, the cryptocurrency market is heading into uncharted territory and could reach scary lows as investors move out of risk-heavy assets like crypto. On the other hand, Bitcoin may be seen as a hedge against government currencies, but this is pure speculation and nobody truly knows what will happen over the coming years in the financial markets.

In summary, this seems like it will be a short-term bull run before the larger market trend of a contraction continues. The main reason is because of the larger market conditions, but it is also historically unprecedented for the market to recover this quickly. Although unfortunate, it also gives investors the opportunity to stack cryptocurrencies at low price points and accumulate a solid portfolio before the real next bull market begins.

By Lincoln Murr

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