The past four months have been an agonizing wait for crypto enthusiasts all over the world, as they have sat through a largely bearish market. But, after a long wait, good news arrived last week when Bitcoin (BTC) surged to $40,000. While this does not necessarily signify the end of the bear market, the gradual recovery of the crypto market, combined with multiple bullish signals, has given several investors and enthusiasts reason to be optimistic.
Crypto market makes massive recovery with BTC and ETH
At the time of writing, the price of 1 BTC hovers around the $50,000 mark, with a 24-hour trading volume of nearly $35 billion. While Bitcoin prices have seen some volatility lately as it bounces off supports and resistances, they are still up more than 50% since plunging below $30,000 in late July.
BTC 3-month price history – Source: CoinMarketCap
While on the one hand, China has taken several steps to halt crypto trade and mining, in the US, on the other hand, Chairman Gary Gensler of the Securities and Exchange Commission (SEC) has referred to the crypto space as the “Wild West,” and has stated that he will not compromise on establishing a regulatory framework. Despite all of this, prices appear to be rising.
However, Bitcoin’s extraordinary gains appear to be quite small when opposed to Ethereum (Ether), which has nearly doubled in price during the same time period. Ethereum is currently trading well above the $3,200 mark, having increased by approximately 300% since the beginning of 2021, compared to a 40% increase for Bitcoin. This has significantly boosted Ethereum’s market valuation, which has risen from a fifth of Bitcoin’s to over half of its current worth.
ETH 1-month price history – Source: CoinMarketCap
Along with Bitcoin and Ethereum, several other prominent cryptocurrencies have also made gains that continued to rise, with Uniswap, Polkadot, and Dogecoin gaining more than 10% in the last seven days. Cardano (ADA) has had the most price increase of any major coin, with a gain of more than 20%.
Is the crypto market over its bearish term?
The recent price gains for Bitcoin have sent analysts and investors on differing trajectories regarding the crypto market’s future direction. While some predict that Bitcoin prices will ‘go to the Moon,’ others are worried about a ‘crypto winter.’
PlanB, a pseudonymous analyst, is one of the most vocal proponents of the first theory that Bitcoin will continue to rise in value.
The Dutch expert rose to fame after releasing his Stock-to-Flow model in 2019, which is based on Bitcoin’s inherent scarcity and has proven uncannily correct up to this point. The stock-to-flow ratio has proven to be a highly reliable metric for forecasting the price of Bitcoin over time, and it appears that $100000 is a possible price target for later this year and into 2022.
According to the Stock-To-Flow predictions, with the quantity of Bitcoin set at 21 million and mining rewards halving every four years or so, Bitcoin would suffer increasingly bigger boom and bust cycles. As measured by many iterations of the model, the present one’s peak is in the range of $100k to $500k.
Typically, every four years, Bitcoin issuance is halved, which means that the rate at which new BTC is mined is cut in half. This reduces Bitcoin’s supply and generates scarcity. The last ‘halving’ took place in 2020, with the next one scheduled for 2024. Investors are confident since each ‘halving’ has historically been followed by a strong bull market.
Institutions and their increasing interest in Bitcoin
Despite being highly volatile, Bitcoin historically has produced returns that have outweighed this risk. And buying the dips has proven to be a guaranteed strategy to maximize one’s returns in the long run. This is also the reason why institutions have been increasingly showing their interest in investing in Bitcoin. The recent buying pressure and price gains can be explained in great part by institutional investors’ desire to invest in cryptocurrencies.
More than a dozen companies have applied to securities regulators to launch crypto-related ETFs (exchange-traded funds), including Goldman Sachs. Other firms that have applied to the Securities Exchange Commission (SEC) for an ether-based ETF include VanEck and WisdomTree, ETF specialist firms. A little over a week ago, JPMorgan Chase also announced that it will provide all of its wealth-management clients access to Bitcoin and other cryptocurrency funds.
As the number of institutions investing in Bitcoin grows, so will the asset class’s value, making it a more appealing investment for institutional and retail investors in the United States and Europe and many other countries.
Enhanced institutional interest, coupled with the increasing number of whale accounts – accounts that own large amounts of cryptocurrency and can sway the cryptocurrency’s price with a single trade – suggest a bullish market for Bitcoin over the long term.
Is now a good time to invest in crypto?
BTC’s latest ascent to its intramonthly high marks not just the cryptocurrency’s 10-week high, but also a breakout above its almost 3-month-long $30k-$42k consolidation range. Both of these facts strongly suggest that BTC is on the verge of a new uptrend. The next few days, weeks, and months will determine whether this remarkable turnaround is the second leg of a record-breaking bull run or a dead cat bounce.
As for Ethereum, it has displayed a stellar performance. Due to the rise of DeFi (Decentralized Finance), NFTs (Non-Fungible Tokens), the forthcoming launch of ETH2.0, and its ongoing migration to a Proof-of-Stake architecture, ETH has garnered the interest of both new and existing market participants since the beginning of the year. In addition to this, the London Hard Fork update, which will significantly reduce transaction fees on Ethereum (and also lead to burning of ETH as transaction fees, reducing supply and causing deflation) has also been a key driver in its recent rally. Given the strong demand for cryptocurrency, experts are anticipating that ETH will outperform BTC this year.
Despite the recent rise in the values of several cryptocurrencies, investors must be aware that there is no quick way to make massive profits. All speculative investments involve patience and the ability to interpret market movements correctly. Investing in any asset while its price is low and predicted to rise in the future has long been thought to be a wise investment strategy. However, because it is difficult to predict when the price of a cryptocurrency, such as Bitcoin, will rise or fall, there is no such thing as a great time to invest.
Simply put, managing risks and maximizing gains are the two main principles of investing. Although the crypto market is infamously volatile, with prices fluctuating by up to 30% in a single day, risk management is possible and within everyone’s reach. Rather than trying to make easy bucks, the greatest strategy for investing in cryptocurrency is to develop your wealth over time, as crypto assets tend to follow cycles and compound over time. If your goal is to make long-term gains, buying during a decline and holding until you make a profit is an option to consider.
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