Current State of the Crypto Market
We are truly living in unprecedented times, Especially when it comes to investing in crypto. On the one hand, the market is very bearish, with the general opinion that we are about to enter a period of extreme pain for not only crypto but all investments. That the world isn't only on the cusp of a brutal recession, but that we're about to enter the greatest depression the world has seen in nearly 100 hundred years. With that said, there are glimpses of hope out in crypto that might just be enough to ward off the brutal market, and potentially send prices upward. Even talks of the next bull cycle being not so far away. To simplify this, the market isn't sure whether to be optimistic or negative about the future, and that isn't how this usually works. When everything is usually set in stone. So which is it? Is the market going to crash, or soar back to previous peaks?
Let's first talk about the bearish take.
For anyone who has been paying attention to the world during the last several months, it is becoming increasingly hard to remain optimistic. There has been the Covid pandemic which initially sent the market into shock—followed by money printing by governments which is causing many of the problems that we are seeing today. But, just when the pandemic was seemingly coming to an end, that is when the war between Russia and Ukraine broke out. Which again, sent the market into a panic. If the war wasn't bad enough. It also had a domino effect on other problems that it would bring across the world. Most notably the rising prices of oil and gas would force many European countries into a difficult situation. While during the spring and summer, this was a problem but not yet an emergency. Now that winter is approaching and Europe is becoming colder. Their reliance on this Russian gas to heat homes is becoming increasingly more obvious. They are hamstrung. Even if gas is available, prices have risen so much that many people and businesses cannot afford to use it any longer. Which as you guessed, is causing further panic across the market. This is something that will continue to be a bigger and bigger story, as the weather becomes even colder.
If that wasn't enough, the US FED has been very hawkish. Raising the interest rates on the US dollar significantly over the last few months while other countries are hurting and continue to lower their rates. This has become to cause pain to economies across the world. At some points, the EURO has actually decreased to a value below the US dollar. In Japan, where I currently reside, the Yen has lost nearly 25% of its value compared to the US dollar just in the first half of this year alone. There are countless other examples just like this. Along with the value of currencies value compared to the dollar collapsing, it has also caused the value of investments to drop significantly as well. All of the gains made in stocks over the last two years have been erased. Nearly all of the gains made during the last crypto bull market have also been erased. Many cryptocurrencies now down nearly 85%-95% from their prices during the peak of the market.
If that wasn't enough, there are also other things to be worried about in the future as well. Another fallout from the war between Russia and Ukraine, and the collapse of supply chains is that there is a real risk of extreme famine during this winter. It's very possible that inflation could become worse and cause a spiral effect that causes even more problems. Bringing this back to crypto, Bitcoin from the Mt. Gox hack is going to be returned to its users relatively soon. With an estimation of more than 100,000 BTC being returned to users. This could cause a sudden sell wall that could cause the price of Bitcoin to drop very quickly. Similarly to how the price of Bitcoin dropped when Terra Luna was forced to sell their Bitcoin that was backing the UST stablecoin.
As you can see, there are quite a few things that we are dealing with now and could be on the horizon. It is enough to make any person feel quite hopeless. But all isn't lost, and there are some very positive things on the horizon as well. All hope isn't lost.
The first thing to be excited about is actually just over one week away. This is the Ethereum merge. Ethereum will be transforming from a proof-of-work blockchain, into a proof-of-stake chain. This is the first major step for Ethereum's 2.0 upgrade and is considered to be the most difficult as well. This will also cut down on one of the largest pieces of FUD thrown toward Ethereum and Bitcoin's direction. That being their use of energy and harm to the environment. The merge will also bring about Ethereum's "triple halvening" which will cut Ethereum's issuance rate by nearly 90%. Which could eventually make Ethereum a depreciating supply blockchain. Also, it is estimated that the staking rewards will also double. Which will most likely cause a rush towards the asset. A rush towards Ethereum with people locking up their coins to stake, and the issuance rate being cut by 90% all equals a supply shock that is likely to come. Not only will this cause Ethereum's price to rise, but should affect the entire crypto market as well.
The next thing to be optimistic about is the US FED raising interest rates. They have been very hawkish about raising rates and remain so. But it is predicted that this won't, and cannot last forever. As it would essentially destroy almost all other currencies and markets around the world. And so the FED will give off a hawkish impression, but begin to become dovish. Potentially as early as this fall. Once this happens, financial markets will begin to recover and eventually pump. Once the FED officially pivots, that will be the moment that we can all agree that the bottom of markets is in, and we are beginning our next march towards higher prices, which will affect all markets, including stocks and crypto.
For those of you who have been following my work for quite a while, you will probably know me for being overly optimistic about the market. I'm fully of the opinion that Bitcoin and Ethereum will eventually reach those price points that will make many of you reading this article very wealthy. With that said, I am very concerned about the next several months. I think the world, financial markets, and even crypto could be heading towards some very dark places. Even if that does happen, it won't last forever. The prices that we are currently seeing in crypto markets are extremely cheap in my opinion and I'm happy buying at these prices. If prices drop further, I will happily buy even more. These are the times when portfolios are built, and riches are made.
How about you? What do you think will happen to crypto and financial markets during the next few months?
As always, thank you for reading!
