Cryptocurrencies navigated a challenging period over the past year, and while the beginning of 2023 had started off promising enough, there were soon signs of trouble along the way. The regulatory context has been particularly notable since lawmakers worldwide have expressed their desire to regulate digital assets. As a result, Bitcoin has fluctuated over the past few months, with values shifting significantly. Earlier this year, the price reached the $30,000 mark before starting on a downward trend again.
However, investors remain convinced that the coin will eventually recover and achieve its previous glory. Although it might still be a while until this happens, there are several indicators that digital money will enjoy a favorable period at some point, owing partially to the current crisis in traditional finance and traders’ continued engagement.
For a long time, the digital asset market has been in the grip of a bear market, which coincided with a crypto winter. Generally, bearish tendencies within the economy signify an oncoming recession, which seems to be getting steadily more probable, according to analysts. Yet, the situation appears to be on the mend. Bitcoin’s year-to-date rally shows figures of 63%, which is an indicator of the market’s upward journey for some.
This number relates to BTC’s realized price, the average value of the supply calculated based on the price the coins had the last time they were moved on-chain. So far, this value appears to exceed the one of long-term holders. LTH reflects the average price for coins stored outside exchanges that haven’t been moved for at least 155 days. Historically, when this trend was observed in the past, it preceded a considerable price rally.
The US has recently been the center of extensive, crypto-specific regulations to make the space easier to manage and reduce the probability of fraud and other illicit activities. Many exchanges have taken a stand against these actions, however, claiming that the movements are in no way helpful for the industry and that some platforms might even feel compelled to move their processes off-shore. The UK has also announced that it will implement measures over the next twelve months. Yet, they aren’t expected to be harmful given that PM Rishi Sunak historically had a positive opinion of digital finance.
Recently, the EU has approved a comprehensive plan for crypto regulations, the first of its kind in the world. European regulators have been looking to develop a plan of action following the collapse of several exchanges in 2022, which caused a significant amount of financial distress among investors, as the funds of many were simply wiped out.
A meeting between finance ministers in Brussels approved the set of regulations, which were later discussed at length in the European Parliament. The rules aim to protect EU citizens that invest in crypto and ensure malicious individuals can’t use the blockchain for their own purposes.
Bitcoin is the most important cryptocurrency in the world, the first of its kind to be launched on the market. Its impact shouldn’t surprise anyone, considering that BTC is in a category of its own within the market, while the other digital coins are collectively referred to as “altcoins.” Among them, Ethereum has stood out as the largest by market capitalization, with only Bitcoin above it. And while the difference between the two is considerable, with BTC being over twice as big as ETH, analysts have often discussed the correlation between the two as a means to discuss the market overall.
So far, the two have more or less moved in tandem, with their climbing and falling values being more or less in sync. Generally, the entire market tends to follow Bitcoin’s moves, but since the beginning of 2023, the connection between it and Ether has become weaker. Currently, it stands at under 80%, a significant drop from only two months ago when it was around 96%. The current levels are the lowest since 2021.
Ethereum’s new status, as more decoupled from Bitcoin, might have to do with its switch from a proof-of-work to a proof-of-stake protocol. This shift has meant that supply and demand continue to diverge. However, that doesn’t mean there will soon be a regime change in the crypto world, and Ethereum is set to replace Bitcoin.
This divergence is most likely to signify that BTC will maintain its status as “digital gold” while ETH becomes more of an emerging market.
When Bitcoin recorded a steep climb in January, investors instantly understood the market would register a positive shift. However, it was also crucial that prices don’t suddenly skyrocket, as it could signify incredibly high volatility and make the market more challenging to navigate. Luckily, this scenario hasn’t materialized, and the growth has been slow and steady. There have been several times during which the price dropped.
Now analysts believe it might dip even lower before completely recovering. Market participants remain cautious, however, claiming that it’s complicated to determine how the market will develop under the circumstances and that offering accurate predictions remains difficult. Some have expressed the view that the most likely tendency is that of higher values overall when taken on a weekly timeframe, followed by a daily breakdown.
Notably, the weekly trend points towards bullish movements, which can, in the long run, lead to a break of the $31,000 milestone.
Debt ceiling volatility
The debt ceiling is a US legislative concept referring to the number of debts the Department of the Treasury can take on. This figure is currently one of the primary considerations when considering macroeconomics. The 1st of June is now seen as a possible date for a default, which would be challenging for worldwide markets, to say the least. Recession and frozen credit are some of the most probable outcomes, and the stock markets would plunge significantly.
While there’s no certainty this doomsday scenario will come to pass, investors must be aware since cryptocurrencies could also be affected. Analysts have warned that traders should expect lower liquidity and heightened fluctuations, particularly around the deadline.
The cryptocurrency market is navigating a demanding period in its history because the entire economy faces challenges. Investors need to remain vigilant and think carefully before making any choice.