TO bitcoins over $30,000, an ethereum over $2,000, we hadn't seen that in over a year. How to explain that the cryptocurrency market seems to be regaining strength when many economic or social indicators are negative, even pessimistic? Phonandroid takes stock.
2022 has been a bloody year for cryptocurrency investors. In an already bear market, the price of altcoins plunged as much as -90% on certain tokens. The top 10 has been beaten, suffering the scandals of Terralabs, FTX or Celsius. Bitcoin, the king of cryptocurrencies, has taken other cryptocurrencies with it as governments seek to regulate these decentralized markets, inflation soars, and the cost of energy and materials soar.
Not too long ago, living investment legend Warren Buffet insisted on criticizing Bitcoin, comparing it to a casino chip. And yet, the cryptocurrency market is experiencing a real euphoria in the last hours. We explain why.
Bitcoin price in dollars, its last 7 days (source: CoinMarketCap)
Why is bitcoin going up?
Around $16,000 at the start of the year, bitcoin has crossed the $30,000 mark since April 11. An exceptional coast that the king of cryptocurrencies had not seen since June 2022. In the last seven days, bitcoin has achieved growth of more than 8% while the economy is not prospering, despite the arrival of spring. The United States and Europe want to regulate the market. Inflation is weighing on economies, the war in Ukraine persists, the energy market is skyrocketingโฆ Nothing very happy.
Despite the financial scandals of FTX or TerraUSD/Luna, the pressure of conventional banks on their clients, the desire for government regulation, cryptocurrencies remain. With the extreme volatility of its last months, some have sold everything, but many "HODL" (=Hold On for Dear Life" that is to say "Do not sell, as if your life depended on it"). Investors are more confident in bitcoin, even more so than altcoins. They are called "bitcoin maximalists." They believe in the concept of blockchain (decentralization, self-regulationโฆ) and particularly in the Bitcoin project (antiquity, scarcityโฆ). The war in Ukraine even accelerated the adoption of bitcoin directly and indirectly.
Faced with FIAT currencies (currencies issued by each State) that are devalued with galloping inflation and the goodwill of central banks, everyone is looking for a safe haven to preserve their capital. Traditionally, stone (real estate) and precious metals claimed this safe haven title. Gold has taken +50% in dollars and even +70% in euros, in the space of 5 years. But keeping Napoleons or Bullion is risky. Not everyone can dig a hole at the bottom of their garden. Cryptocurrencies are more liquid.
Then gold-indexed cryptocurrencies like Paxogold emerged. But investors still prefer the king of cryptos, the unbeatable bitcoin and its capitalization of 586 billion dollars. The alliances created with companies, banks or countries increasingly establish the sustainability of bitcoin and the stability of its network. Also, for the past few years, the price of BTC has been based on that of NASDAQ. As the NASDAQ rallies, Bitcoin benefits. Experts are already expecting a bounce above $35,000 and triggering a bull run. Is this finally the development of cryptocurrencies? At the beginning of the year, experts had already predicted a bitcoin worth more than $100,000...
Why is Ethereum going up?
The success of the king of cryptos (BTC) obviously benefits the entire crypto market and in particular Ethereum, its worthy vassal. The optimism around ether is explained by technical and psychological reasons. Technical first, because the Ethereum network has successfully updated its Shapella. Shapella is actually the contraction of two separate updates Shanghai and Capella. This upgrade is an intermediate step leading to the transition from a PoW (Proof of Work) network to a PoS (Proof of Stake) network. In simpler terms, the ethereum network will become a greener blockchain, because it consumes much less energy.
Blockchains are generally based on PoW (like Bitcoin) and require very complex calculations to validate transactions. With PoS, a trade will be confirmed by a validator (computer or groups of computers) that has a good reputation on the network. Clearly, each new successful upgrade demonstrates that Ethereum will make a successful transition and therefore become stronger.
Beyond the progression of the Ethereum network mutation, the Shapella update acts directly on investors. It allows ETH holders to withdraw their funds. Indeed, it must be remembered that the ethers were blocked since The Merge (beginning of the transition), that is, September 2022. This is where psychology comes into play. Several experts expected a market contraction. ETH holders might have feared that there was an urgent need to sell, as the crypto market has been gloomy for several months.
The ether sell-off would have melted the cryptocurrency coast. And apparently, the opposite scenario is occurring. Both small and large investors are bullish as the price broke the 2000 dollar mark just after the Shapella announcement. Since then, they have been slowly declining, but remain above $2,000 as of this writing.
Towards the end of the crypto blood market?
Phonandroid does not possess a magic ball or Doctor Strange powers. We cannot give indications in the short term and even less in the medium term. The cryptocurrency market is known for its volatility โ it's a cryptocurrency roller coaster. In any case, the health of BTC and ETH also benefits altcoins. The positions of the Fed and the US government will continue to be decisive in breaking the hesitations of cryptocurrencies.
Nb: This newspaper article is in no way financial advice.
