Cryptocurrencies such as Bitcoin, Ethereum, and others had a difficult year. Investors have been concerned about when crypto prices will recover. Crypto investors should be aware of the following factors both now and in 2023.
The cryptocurrency market in 2022 experienced a steady stream of unfavourable news. As crypto value fell from its top of $3 trillion in November 2021 to below $1 trillion just one year later, the markets were unable to rest.
The market capitalization of cryptocurrencies has reached $830 billion as a result of the recent impact of the collapse of the cryptocurrency exchange FTX. But when things are at their worst, there is only one direction to go: UP.
What about cryptocurrency, then? Is a trend reversal on the horizon? Perhaps right now, before the crypto market recovers, is this the best moment to buy?
Check out this post to learn more about the causes of a bear market in cryptocurrencies and how to get ready for one.
What Is Causing Crypto Prices To Fall?
The cryptocurrency and equities markets were both shaken by a confluence of macro forces. A flurry of macro headlines, including the conflict in Ukraine, increasing interest rates, blazing inflation, and sluggish job growth, stoked unease and prompted a selling frenzy. The aggressive approach of the Federal Reserve and persistent interest rate increases are to blame for the market’s continued weakness, according to GlobalBlock, a publicly traded digital asset broker. Marcus Sotiriou, an analyst, remarked the market views cryptocurrencies as dangerous investments, and he continued, “If financial circumstances tighten, these assets will sell down.”
The fact that the crypto market has long closely mirrored the stock market does not help. The lack of correlation between the two in the past contributed to the allure of cryptocurrencies for many investors.
According to Dan Ashmore, an analyst at the trade news website CoinJournal, “the link between the cryptocurrency market and the stock market has risen dramatically this year as the economy entered a new interest rate environment.”
But what we should be focused on right now is how to survive in the crypto bear market.
When Will The Volatility In Crypto Prices Subside?
According to Sotiriou, if the Fed eventually stops raising rates or starts decreasing them, the whole market slump may come to an end. He adds, “Once the Fed removes aggressive monetary policy, the former is more likely.”
Since it will rely on the strength of economic data in the upcoming months, it is difficult to estimate when crypto prices will recover, but Sotiriou stated, “It makes sense for Fed interest rates to peak in the middle of the following year. It’s now.” There may be less macroeconomic uncertainty now, especially with regard to inflation.
According to Ashmore, there is a need to control inflation, calm down the energy markets (which are still being negatively impacted by the conflict in Ukraine), and reduce volatility. “It’s very hard to know, so I’m hesitant to establish a timeline,” he adds, adding that he anticipates the [short-term] pain to worsen as winter approaches.
The market is likely to keep expanding. Sotiriou said that despite the general unrest, “cryptocurrencies have been absorbing unfavourable news over the past few weeks, showing no additional surrender and exhibiting near-term growth.” We think things might start to get better soon.
Optimism is warranted in light of the most recent indication that the Federal Reserve may shortly reduce rate increases. Recent pronouncements “may provide some comfort at a time when rate hikes and the Fed’s aggressive posture are top of mind for investors,” Sotiriou added.
We have to stay positive!
When Will The Value Of Cryptocurrencies Re-Increase?
Although no one can be certain, the aforementioned considerations suggest that a larger cryptocurrency rebound may be imminent.
Investors might take advantage of this chance to stock up on expensive high-quality assets rather than trying to time the market. If short-term volatility can be tolerated, Ashmore argues that multi-year investors may be ready to invest in crypto assets.
Buying established assets that “have a high chance of weathering this storm (or one that may be on the horizon)” is another approach for investors to gear up for the recovery. This is where DCA can help.
Dollar-cost averaging is the practice of regularly investing modest sums of money in reducing the average cost per unit while distributing risk. Learn more on crypto tools that can up your game as a crypto trader.
Cryptocurrency Prices Past 2023
Cryptocurrency markets may ease temporarily as macroeconomic conditions improve before volatility returns for a while, according to Sotiriou. In the long run, the picture is more favourable.
Over the coming years, he believes, “we may expect a tremendous expansion of the crypto ecosystem, especially as macroeconomic headwinds lessen and regulation becomes apparent.”
In the short term, Ashmore is less certain and cautiously optimistic in the long run. Winter has arrived, there is a global energy crisis, inflation is out of control, and there is even a minor war raging in Europe.
Short-term cryptocurrency purchases are only a gamble in this scenario, and only premium coins like Bitcoin and Ethereum are likely to appreciate over time, according to him. The all-time highs that many coins printed during the pandemic will never be attained. Investors must balance their time horizons and risk tolerance while selecting assets with real value and clear roadmaps.
How Would Regulating Cryptocurrency Affect It?
Contrary to common assumption, the good news is that more regulation may hasten cryptocurrencies’ recovery. I’ve addressed more on cryptocurrency regulation here.
Some people view the unavoidable need for regulation as a drawback. While Ashmore contends that it should help cryptocurrencies into the mainstream. It’s more of a question of “how” than “if” because everything else in finance is controlled.
Another plus is stricter regulation. Organisations that have been waiting on the sidelines can become more confident as a result. According to Sotiriou, there hasn’t been enough regulatory clarification around the entire crypto economy, particularly in the US and Canada.
Before making a purchase, many institutional investors await greater regulatory clarification. If it happens, the value of the cryptocurrency might increase dramatically.
There Are Now Indications Of Rising Adoption
Popular media frequently covers cryptocurrencies. Numerous publicly traded corporations’ balance sheets now include Bitcoin, from Visa and Google to Tesla and JP Morgan. Even libertarian organisations like the Ontario Teachers’ Pension Plan have made significant cryptocurrency investments. The 2022 CFA Institute Investor Trust Study also found that a startling 94% of US state and federal pension plan sponsors now hold cryptocurrency investments.
He asserts that history shows that good technology eventually gains acceptance. It will simply take time.
Which Cryptocurrency Has The Best Long-Term Prospects?
There is no such thing as a cryptographic crystal ball, but some experts think there are premium currencies that support numerous projects and have real-world applications. (Read more here on the elements influencing the longevity of cryptocurrencies.)