Crypto is back on track! According to coinmarketcap.com, the total value of all cryptocurrencies now stands at approximately $1.17 trillion, showing a 5% rise in the past day. Probably, this percentage is changing as you are reading this. In fact, many crypto coins have recently been out of the correction pattern and are rising again. What a relief for those anxiously monitoring Bitcoin prices and waiting for it to hit a new all-time high, which has become an entertainment well outside the crypto community. So, Why is crypto up? Let’s look into it.
The surge in the cryptocurrency market can be traced to several key factors. Firstly, the growing inflation of the U.S. dollar plays a significant role. While inflation typically averages around 2% annually, recent stimulus measures have raised concerns about increased inflation and a decrease in the purchasing power of the US dollar. The fear that money will cost nothing very soon has led many investors to allocate a portion of their capital into cryptocurrencies, so to say, to put their eggs in different baskets.
Historical Context
Can’t say that, when crypto emerged, anyone was 100% sure that it was a legit way to invest money and that no risks were involved. Frankly, that is true with any investment; it always involves a certain amount of risk. However, at the very beginning… well, let’s say crypto was for the chosen ones. For those who were either mad risky or had some serious investment mojo. In the end, it seems to be working out just perfectly for both.
Let’s look back a little
Before 2017, Bitcoin experienced a two-year decline in price, dropping from around $300 to approximately $200. However, it then entered a crypto bull run that lasted for about two years. In 2017, Bitcoin not only surpassed its previous all-time height but continued to rise significantly. By the end of that year, Bitcoin’s price was nearly $20,000 before crashing down to around $3,000 in 2018. Since then, the market has been on a steady rise with Bitcoin reaching a new all-time height of over $60,000 in 2021. Since then, it has has some fluctuations but has not shown any dramatic falls like in 2018.
During the same period, altcoins emerged. Ethereum, a blockchain platform for decentralized applications, saw its native cryptocurrency, Ether, surge from around $8 to an all-time height of $1,900 in 2022 with the current Ethereum price being just about that figure. Litecoin, the digital silver, reached a peak value of over $375, thanks to its faster block generation and scalability features.
Overall, the weekly cryptocurrency market capitalization has risen from around $700 at the beginning of 2018 to over $1000 now. The all-time height was seen in 2021, when it almost reached $3000 in weekly capitalization.
Factors at Play
We can all appreciate that the cryptocurrency growth reasons are multifaceted and include economic underpinnings, tech advancements, institutional acceptance of crypto, and of course, word of mouth, i.e. social media.
Economic Factors
Let’s take a closer look at the cryptocurrency and global economy trends we have now, inflation being one of them. When inflation rates surge, individuals look for ways to protect their cash from its erosive effects. As a result, some turn to cryptocurrencies as a potential hedge against inflationary pressures, aiming to safeguard the value of their assets. Now, the fear is higher than ever, thus more people are looking for alternative ways to invest money, which brings inflation and cryptocurrency growth in close proximity.
The impact doesn’t stop there, though. Monetary policies implemented by central banks are also important players when it comes to cryptocurrencies. Through adjustments in interest rates and money supply, central banks also impact the valuation of digital currencies; their actions can either stimulate or dampen market sentiment crypto -wise, leading to fluctuations in cryptocurrency prices.
Technological Developments
Blockchain technology has, indeed, been the backbone of crypto. The advantage of blockchain innovations is that extra level of security for your money. You know that your blockchain wallet is much harder to breach than any other asset you have, which sure makes cryptocurrency investment more tempting.
Bringing new technology also reflects in new cryptocurrencies. A good example of that is Ethereum, who was pioneering in smart contracts. Smart contracts and, in turn, decentralized exchange allow for better trading experiences, lower gas price and other perks the market hadn’t seen before. Given crypto is an extremely technology-based field, technology that can bring about new opportunities has been, and will be, influencing its popularity.
Regulatory Landscape
Recent regulatory advancements, such as the Markets in Crypto-Assets (MiCA) provisional agreement in the European Union (EU) and the Framework for International Engagement on Digital Assets in the United States (US), show a commitment to establishing clear cryptocurrency regulations and guidelines in the crypto realm. It’s a proactive approach to tackle the challenges faced by cryptocurrencies and create a safer environment for everyone involved. This basically means that crypto is finally recognized at state levels, which seems to be giving confidence to new potential investors, thus the surge.
In particular, one potential benefit of these regulatory changes is the increased protection they offer to investors. The goal is to prevent fraudulent activities, money laundering schemes, and other illicit practices, which as we all know are not that in the crypto field. The strategies such as Know Your Customer (KYC) policies and Anti-Money Laundering (AML) procedures aim to instill confidence, reduce risks, and create a level playing field for all participants.
Besides the implementation of de-facto protective measures, the very fact that these regulations exist changes the way traditional financial institutions and institutional investors perceive and adopt cryptocurrencies. As regulations provide clearer guidelines and oversight, it becomes easier for these established players to confidently navigate the cryptocurrency market today. Their increased participation can contribute to the maturation and broader acceptance of digital assets in mainstream financial systems. Evolution as it is. Crypto for all, you guys.
Market Sentiment and Psychology
The influence of media and social media on investors cannot be underestimated either. There’s an actual study carried out during the COVID19 pandemic that discovered how media coverage of crypto news, for example, can make people go all “follow the herd” in the crypto market.
And that’s not the only study. There’s this whole bunch of research papers talking about how people in the crypto follow the crowd. Looks like we’re influenced by what others are doing or what the public sentiment is a lot more than we had thought.
Hold on, there’s more. Yet another study found traders react as a group when there are extreme price swings, especially if it implies high risks. And this is exactly when herd behavior begins to have serious implications for the market, you know?
External Events
Significant business deals or partnerships in cryptocurrency can wield considerable influence over the market. Take, for instance, the collaboration between Qtum, a blockchain platform that merges elements from Bitcoin and Ethereum, and Amazon Web Services (AWS). Such partnerships have the potential to shake things up and create ripples in the market.
Moreover, global events or crises that undermine investor confidence can leave a lasting imprint on the cryptocurrency landscape. The COVID-19 pandemic serves as an example, as its widespread effects have reverberated throughout various sectors, including cryptocurrencies. The pandemic has undoubtedly impacted the market, prompting shifts in investor behavior and reshaping the dynamics of digital currencies. Besides, the Russian war against Ukraine may impact the cryptocurrency market rise due to geopolitical tensions and imposed sanctions, which drive investors towards cryptocurrencies as a hedge against uncertainty.
Analyses and Opinions
According to BeInCrypto.com crypto market analysis, Bitcoin price, as well as altcoins performance, has been improving. Many coins are now exiting their descending parallel channels, which is a steady decline in price that corresponds to the corrective pattern. If the tendency persists, the Crypto Market Cap is likely to have a new yearly high will be reached.
More science. The greatest minds have published six distinct perspectives on crypto. This body of research indicates that there is a way to make the grow of crypto more sustainable, and that there may be important implications of crypto on other aspects of our lives, including sustainable energy and socioeconomic development.
Potential Risks and Challenges
The current rise in the cryptocurrency market faces several potential risks. Ongoing Covid pandemic and supply chain issues pose challenges, impacting market dynamics. The possibility of future regulatory clampdowns adds uncertainty, with evolving multipolar influences on crypto trading and networks. Additionally, cryptocurrencies’ reliance on technology exposes them to vulnerabilities, making them attractive targets for cyber-attacks and security breaches. Although the recent institutional initiatives on how to attempt to regulate crypto, it may still be vulnerable as a relatively new system that does not have well-designed protection architecture in place.
Conclusion
Institutions all over the world are slowly but steadily jumping on the cryptocurrency bandwagon. This might be one of the reasons behind the crypto market surge; when more people want something, its value goes up – the basic law of supply and demand. And let’s not forget about the limited supply of cryptocurrencies like Bitcoin, especially after halving miners’ rewards. So, the entire situation is basically a call to everyone that cryptocurrencies are becoming more and more valuable.
The economic, social, and political crypto market factors are all equally important in the current landscape; but let’s face it, none of those factors are stable, with all the wars and pandemics going on. All in all, although it is evident that the cryptocurrency trends have been positive and that crypto is finally recovering from a slump, cryptocurrency market experts do not believe that the TOTALCAP new year high should be taken for granted.
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