Where to now for Ethereum and Bitcoin?

2021/05/26 12:00:00

The recent crypto bear market seems to have bottomed out and many cryptocurrencies including Bitcoin and ETH are back in the green. The market appears to be in recovery mode after the dramatic drop last week.

Bitcoin bottomed out at $30,000 and has recovered to healthier levels although it seems to be experiencing resistance around the $40,000 price level. Ether also managed to bounce back after registering a low of $1,728 on Sunday and was trading at $2,750 at the time of this press. ETH's performance indicates a substantial recovery although it is still heavily discounted compared to its $4372 price peak achieved earlier this month.

Will Ethereum and Bitcoin recover to previous ATHs?

Some analysts still expect Bitcoin and Ethereum to achieve new all-time highs. For example, Ark Invest CEO Cathy Wood is still bullish on Bitcoin and expects it to peak at $500,000. A bold claim but one that cannot be brushed aside given her track record. She is one of the numerous financial experts including JP Morgan analysts that have predicted a high possibility of Bitcoin surpassing the $100,000 mark.

There is a perfectly good explanation for a $100K bitcoin and it mainly has to do with the use of Bitcoin as a store of value. Bitcoin has been on a strong rally since March 2020 as the pandemic became more pronounced. There was an influx of crypto purchases especially for Bitcoin because many investors knew the global markets would be severely affected. Cryptocurrencies suddenly became attractive not only as a store of value but also as an alternative investment vehicle. The increase in crypto investments put Bitcoin, Ethereum, and other cryptocurrencies on a strong bullish run.

A continued bullish trend above the recent ATHs might occur if the economic decline continues. The Federal Reserve has been printing money non-stop and this has raised concerns about higher inflation levels creeping in. Concerns about new strains of the coronavirus that are vaccine resistant may exasperate the situation. If the government fails to control inflation and economic decline, investors will divert more of their resources into cryptocurrencies, thus crypto hodlers would benefit from higher prices.

Ethereum may also gain more bullishness thanks to its upcoming Ethereum 2.0 upgrade which will switch from the current Proof-of-work consensus mechanism to a Proof-of-stake consensus. The implications include a more efficient and environmentally friendly approach to mining, faster transaction speeds, and better scalability. These changes will make the Ethereum network more attractive especially in the transition towards the internet of value, thus giving ETH more value.

What is holding back ETH and BTC from stronger recoveries?

Fear, uncertainty, and doubt are highly responsible for a lot of the selling in the market. Unfortunately, there has been a lot of FUD going on lately, triggered by various announcements such as China's increased regulations preventing the use of cryptocurrencies in the country. Those regulations have forced any crypto-based institution including crypto mining companies to wind up their operations in the country. China’s exit from crypto market participation is a huge blow to the market.

Meanwhile in the West, more regulation might also be creeping in. U.S President Joe Biden’s administration recently introduced a new proposal that will require all cryptocurrency transactions above $10,000 to be reported to the IRS if passed into law. Such a move would introduce more friction when buying and selling crypto. As expected, the proposal has introduced more uncertainty among investors.

Summary

It is abundantly clear that the cryptocurrency market is highly sensitive to news. For example, Tesla CEO’s tweets easily influence crypto prices sometimes for the better and sometimes for the worse. The unpredictability of forthcoming market information makes the market highly unpredictable, although the near-term does offer some predictability when the information is positive or negative.  There are different types of market participants who include hodlers, institutional players, and day traders who buy low and sell high.

The bigger the market participant, the bigger the purchase or sale, thus offering a higher degree of predictability. This is why an influx of institutional investors is a good bet for a bullish Bitcoin or Ethereum because of the volumes purchased, which inspires more confidence among the other investors. The fate of Bitcoin and Ethereum’s price performance at any given time rests on the prevailing market information.

 

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Patrick Smith United States

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