Summary: The cryptocurrency market has seen some exciting price action over the past few weeks, with Bitcoin breaking the crucial resistance level at $25,000 and the overall cryptocurrency market capitalization increasing around 20%, or $200 billion, in the past week alone. With the current levels of positivity, some speculate that this is the start of the ...
The cryptocurrency market has seen some exciting price action over the past few weeks, with Bitcoin breaking the crucial resistance level at $25,000 and the overall cryptocurrency market capitalization increasing around 20%, or $200 billion, in the past week alone. With the current levels of positivity, some speculate that this is the start of the next bull market that could see Bitcoin reach the $100,000 price point. However, this is far from guaranteed and relies on much conjecture.
2022 was one of the worst years on record for the cryptocurrency industry. Even though there were several positive events, such as the Ethereum Merge and the continued development and release of new Web3 products, the year was defined by several black swan events. Namely the collapse of the Terra UST stablecoin, the bankruptcy of Three Arrows Capital, BlockFi, and more, and the revelation of FTX’s systemic fraud, all of which negatively impacted public perception of the market and its valuation. Moreover, the continuation of the XRP lawsuit and other cryptocurrencies, such as LBRY, coming under prosecution by the Securities and Exchange Commission has made some investors fearful of what the United States has in store for cryptocurrency regulation.
Ironically enough, this most recent rally seems to have started after the collapse of Silicon Valley Bank, one of the largest banks in the United States that worked primarily with startups and companies in the blockchain industry. This collapse should have caused investors to lose faith in the market, especially since the bank’s collapse demonstrates the risk of providing services and loans to startups. Nonetheless, the week after the government mitigated the SVB crisis, the cryptocurrency market had one of its best days in years, with Bitcoin up nearly 15%.
Will this rally be enough to catalyze the next bull market? Investors that say yes point to a few reasons. First, with the Bitcoin halving coming next year, the market will be primed to price this event in, as it has with the past several halvings. Historically the bull market comes twelve to twenty-four months after the halving, but history does not always repeat itself. Additionally, Arbitrum, the biggest Ethereum Layer 2 and the 4th biggest smart contract platform by total value locked, recently announced their much-anticipated token and DAO. Arbitrum is rumored to have delayed their token from last Autumn due to the poor market conditions, so the fact that an established player in the cryptocurrency space has enough confidence to release a token right now is a positive sign for the industry.
On the other hand, there are several reasons to believe that a bull market is still several months away. For example, the regulatory framework for Web3 is still incredibly uncertain, and there could be some black swan event like Ethereum being labeled a security in the future. Moreover, this rally is fairly short and seems too early to tell if this is a longer-term trend. As previously mentioned, the bull market historically comes a year or so after the halving. This trend has been followed in the three previous bull markets: 2021, 2017, and 2013. With the current uncertainty surrounding the banking system and the possibility of more collapses from banks like First Republic and Credit Suisse in the coming months, this would be a strange time for the cryptocurrency market, which typically trades like speculative stocks, to rally. Finally, the crypto fear and greed index, which tracks investor sentiment in the market, is firmly in ‘greed’ territory, meaning the market may be overbought and due for a correction.
While it remains too early to tell if this bull rally will last, it is fun to imagine that we are months away from the cryptocurrency market reaching new all-time highs. Realistically, this may not be the case, but if so, it offers continued buying opportunities for bullish investors. No one can know the future price action of any market, much less the volatile cryptocurrency market. Still, analysis and historic trends could provide insight into where the market might go.
By Lincoln Murr