Understanding the Future: Will Crypto Recover?
In early July 2024, Bitcoin took a notable dive, dropping to around $54,000. This decline was driven by a mix of factors, including market liquidations and upcoming payouts from the Mt. Gox bankruptcy.
Recently, however, the mood in the crypto world has shifted dramatically. The attempted assassination of Donald Trump, the U.S. pro-crypto presidential aspirant, unexpectedly sparked optimism among investors. This boost in sentiment led to Bitcoin's price jumping by nearly 10%.
As the market begins to stabilize and political events continue to unfold, there’s growing speculation that cryptocurrencies might soon be on the path to recovery.
Key Takeaways:
The current dip in crypto prices was caused by the Mt. Gox transfers, outflows from Bitcoin Spot ETFs and uncertainty surrounding U.S. economic conditions.
Recent political events and reduced liquidations have sparked optimism, suggesting a potential rebound for the cryptocurrency market starting in August 2024.
Key factors that could drive a recovery include increased institutional investment, clearer regulations and positive economic indicators.
A Timeline of Events Leading to Crypto’s Crash in 2022
When the COVID-19 pandemic first started, there were a lot of doomsayers who believed the crypto world was about to crash. However, 2020 and 2021 were marked by a crypto bull run. This occurred for many reasons, among them new market innovations and more people becoming interested in trading. Bitcoinpassed $1 trillion in market value, and several coins hit all-time highs. However, the soaring prices of the bull market couldn't last forever.
Rising Inflation
Inflation worries ignited in late 2021, heightening fears of increased borrowing costs and triggering a crypto downturn. Bitcoin peaked at $69,044.77 on Nov 10, 2021 before tumbling to a low of $46,696.30 by mid-December as investors sought safer havens. The sell-off extended into January 2022, with Bitcoin falling further to $35,180.44.
TerraUSD and LUNA Crash
TerraUSD (UST), an algorithmic stablecoin, became unstable and dropped below the $1 threshold in May 2022. This resulted in its sister token, LUNA, crashing, causing market panic and resulting in over $40 billion in losses. Bitcoin further fell to $19,047.42 by mid-June, half of its value six months prior, as macroeconomic factors like persistent inflation and central bank policy weighed heavily.
Chapter 11 Bankruptcy Filings
June 2022 saw the crypto market hit rock bottom. Key platforms like Celsius Network and Binance halted withdrawals, due to severe market conditions. Notably, Celsius Network had to cut approximately 23% of its staff after having expanded more than five times since the end of 2020. Three Arrows Capital defaulted on a massive $670 million loan, and Bitcoin lost around 38% of its value in June, its worst month on record.
Chapter 11 bankruptcy filings started in July with Three Arrows Capital, followed by Voyager Digital and Celsius. Their downfall was linked to risky strategies, loan defaulting and liquidity drying up. Meanwhile, Sam Bankman-Fried, the CEO of FTX, was positioning himself as an industry savior.
The Fall of FTX
However, FTX also fell into trouble in November 2022. As one of the largest crypto exchanges in the world, FTX had a huge impact on crypto prices. When rumors about the exchange's instability first surfaced, crypto prices began to wobble. It briefly looked like things would recover when Binance decided to look into buying FTX. However, Binance eventually announced the platform was too risky to buy and walked away from the deal. This led to a sharp drop in crypto prices, and in November 2022, Bitcoin fell to $15,742.44.
Investors like Sequoia Capital and Multicoin Capital, who had backed FTX heavily, marked their investments down to zero and anticipated heavy losses. Ryan Gilbert, founder of fintech venture firm Launchpad Capital, pointed to a trust crisis in the crypto world, further destabilizing the industry.
An Overview of the Crypto Market Crash
Though the FTX bankruptcy caused the greatest single sudden drop, there are many other factors that caused the long-term decline in crypto prices. Some experts believe the first signs of the crypto crash occurred in the spring and fall of 2022. As mentioned, several innovative projects that had attracted a lot of buzz from the crypto world — such as Terra, Voyager and BlockFi — all failed. This caused a lot of uncertainty as investors realized many crypto projects were less reliable than they appeared.
Furthermore, investment prices began to drop due to high interest rates. As the Federal Reserve raised interest rates to curb inflation, crypto prices started to slow down and then decline. Without a lot of easy money available, big-time investors had fewer opportunities to put funds into the crypto market.
The final contributing factor was the federal crackdown on cryptocurrency. As crypto became more popular, its ability to run under the radar faded. Several notable cases, such as the Securities and Exchange Commission (SEC) charging Kim Kardashian for unlawfully promoting crypto, eroded public trust in the crypto market. Ultimately, all of these factors combined to cause significant dips in crypto prices. Since 2021, the overall market cap for crypto has more than halved.
Why Is the Crypto Market Down in 2024?
In January 2024, the U.S. Securities and Exchange Commission approved Bitcoin (BTC) Spot exchange-traded funds (ETFs), sparking a rebound in cryptocurrency prices. Bitcoin prices surged by over 68%, and other top cryptocurrencies also recovered significantly. However, by early July, momentum had faltered and the global cryptocurrency market experienced a notable downturn, dropping by 5.7% to approximately $2.114 trillion. After a period of recovery, this decline left many industry watchers speculating about the causes. Following are some of the possible factors.
Mt. Gox's Bitcoin transfer: Concerns arose when approximately $9 billion worth of Bitcoin was moved from Mt. Gox’s cold wallet to an unknown address, possibly indicating a significant market dump and spooking investors.
Bitcoin Spot ETF inflows: There’s been a decrease in inflows to U.S. Bitcoin Spot ETFs, adding to market uncertainty.
Federal Reserve policy: Expectations regarding the Fed’s policies and potential interest rate changes may have influenced investor sentiment and market dynamics.
Together, these factors have likely created a challenging environment for the cryptocurrency market in 2024.
Current Market Conditions
So how's the crypto market been since crypto winter? So far, it hasn't recovered by much. The total market cap was hovering around $3 trillion for a while, but it plummeted to around $800 billion by late 2022. Early 2023 saw the total market cap rise above $1 trillion again, and it has mostly stayed in the $1 trillion to $1.3 trillion range since. Then, in early 2024, it jumped to $1.67 trillion.
However, this growth was short-lived. The market dipped again as inflows into U.S. Bitcoin Spot ETFs slowed and news of the Mt. Gox Bitcoin transfer surfaced. Despite these setbacks, a shocking event — the July 14 attempted assassination of former President Trump — led to a surge in crypto prices. The attack, which seemed to boost Trump's prospects of winning the election, was perceived as positive for the crypto market, due to his reputation as crypto-friendly.
In response, Bitcoin saw a remarkable 10% gain within a week, reaching $63,604.15 by Jul 18, 2024. Currently (as of Jul 30, 2024), the total cryptocurrency market cap stands at $2.5 trillion.
While the overall market has been stabilizing at an overall lower price, individual cryptos have had some noteworthy movements. Taking a close look at some of the major crypto projects reveals a few other notable trends in the past performance of the crypto market.
Bitcoin: BTC reached extremely low prices of around $15,000 in late 2022. Despite significant dips again in March 2023 and early June 2023, it managed to almost double its value and reach around $30,000. BTC started 2024 at a price of $44,167.33 and hit an all time high of $73,083.50 on Mar 13, 2024 before losing steam. Its current price is $66,646.61 (as of Jul 30, 2024).
Ethereum: For much of late 2022, ETH was in the $1,000 to $1,300 range. However, it mostly recovered its value and rose to $1,883 in July 2023 and $3,622.44 on January 1, 2024. Currently (as of Jul 30, 2024), ETH’s price stands at $3,309.16.
Ripple: XRP has had drastic increases and decreases lately. In early 2023 alone, its price went from $0.34 to $0.52, and ended the year at $0.61. Now, it’s sitting at $0.5996 (as of Jul 30, 2024).
Lido Staked Ethereum: stETH's price changes have mostly mimicked ETH, since its price is so closely correlated to that of ETH. It sat at around $1,000 in late 2022, moved up to $2,295 by the end of 2023 and is currently worth approximately $3,310.42 (as of Jul 30, 2024).
Cardano: ADA hasn’t been doing well since the crypto crash. It stayed mostly stable when other cryptos were dropping in November 2022, but dropped all the way to $0.25 in late December. After hovering around $0.40 for a few months, ADA’s price decreased significantly to $0.24 in October 2023 and shot up to $0.66 in December. After spiking to $0.77 in March 2024, it’s now at $0.4032 (as of Jul 30, 2024).
Dogecoin: Unlike many other cryptos, Dogecoin underwent a huge spike in November 2022 when it reached $0.14. Since then, its price has been on a downward slide. DOGE managed to hit $0.22 in April 2024, but has since declined to $0.1338 as of Jul 29, 2024.
Litecoin: Litecoin is one of the few cryptos to do well since the 2022 crash. Its price has been steadily rising, from around $50 to a $109.27 peak in March 2024. Its price is $73.74 as of Jul 30, 2024.
What Factors Could Contribute to a Crypto Rebound?
The cryptocurrency market recently took a hit, with Bitcoin and other digital assets seeing a sharp decline in value in early July 2024. This downturn was largely driven by several key factors: growing economic uncertainty in the U.S., a more aggressive stance from Federal Reserve officials on interest rates and significant withdrawals from Bitcoin Spot ETFs. However, several potential drivers could lead to a rebound in the cryptocurrency market:
A Potential Trump Presidency
A potential second Trump presidency could significantly contribute to a crypto recovery due to his pro-crypto leanings. Trump's recent campaign has embraced cryptocurrency, positioning him as a "crypto president" who supports the industry. Following a thwarted assassination attempt, optimism surged around his chances of winning, leading to a sharp increase in Bitcoin's value. Investors are betting on the "Trump trade," anticipating that his administration would oversee a more favorable regulatory climate for cryptocurrencies, contrasting with the stricter policies seen under the current administration. This shift in sentiment could drive renewed interest and investment in the crypto market.
Positive Economic Reports
If upcoming economic data, like the personal consumption expenditures (PCE) price index, indicates that inflation is under control, it could boost investor confidence and encourage more investment in cryptocurrencies.
More Clarity on Government Regulations
When it comes to crypto investing, regulation isn't necessarily a bad thing. Proper regulation can help with issues such as sketchy crypto firms overpromising and under-delivering. However, when regulations seem to come out of nowhere, and only apply to certain parts of the crypto industry, it causes uncertainty that drives prices down. The only way to fix this problem is to have clear, reliable regulations that crypto investors can count on. More stability on the regulation front will help the market avoid further declines in pricing.
Improved Market Sentiment
Positive news or endorsements from influential figures could shift investor sentiment, creating a bullish trend and encouraging more investment in cryptocurrencies.
Institutional Involvement
Institutional interest in crypto from financial heavyweights like BlackRock and Fidelity partly triggered the 2023 BTC price surge. Increased investment from institutional investors, especially if they show faith in the market’s long-term prospects, could have a significant positive impact on prices and market stability.
Decreased Interest Rates
Recently, rising interest rates have been one of the main causes of declines in the crypto market. High interest rates have always been closely correlated to declines in crypto investing.
Not only do rising interest rates cause market uncertainty, but they also make it harder for investors to obtain capital. Many end up pulling their funds out of the crypto market and switching to less volatile investments. A prerequisite for getting all this investment capital back into crypto is for interest rates to start declining again.
When Will Crypto Recover?
The cryptocurrency market has shown impressive performance in 2024. Following a strong finish in 2023, its market cap surged to a high of $2.9 trillion on March 13, 2024. Both Bitcoin and Ethereum have seen significant gains, with Bitcoin prices rising by over 48% year-to-date, and Ethereum up by 43% so far this year.
Several factors have contributed to this positive trend. Regulatory changes, such as the SEC’s new rules allowing Ethereum Spot ETFs, have bolstered market confidence. Also, the potential for the Fed to cut interest rates later in the year could further spur crypto prices.
The current bull market is also fueled by growing confidence in decentralized finance (DeFi) and increasing adoption of cryptocurrencies by mainstream companies. The sustainability of this upward trend will likely depend upon the continuation of favorable regulations, technological advancements in the crypto space and overall global economic health.
While market volatility makes it challenging to predict exactly when cryptocurrencies will recover fully, current trends suggest the market could continue to grow through 2024 and possibly reach new heights by late 2024 or early 2025. However, it’s important for investors to stay informed and consider the risks, as predictions are speculative and the market can be unpredictable.
The Bottom Line
The cryptocurrency market is beginning to show signs of recovery, buoyed by a reduction in liquidations and a surge of optimism from recent political events. Experts are optimistic about a rebound beginning in August, likely fueled by the end of heavy liquidations and a fresh wave of investment inflows. A Trump presidency, clearer regulations and positive economic indicators could also contribute to a full recovery. As shown by growing institutional interest and ongoing technological advancements, the crypto market's resilience suggests a solid foundation for future growth and stability.
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