If bitcoin’s price stabilizes over the next two weeks, the prolonged crypto bear market — also known as crypto winter — could end as quickly as it started.
That’s according to Edward Moya, senior market analyst at brokerage firm Oanda, who says “Wall Street is enjoying a positive risk-on mood that is good news for cryptos.” He says the crypto market is starting to look “attractive now that the economy is looking a little better as expectations for Fed tightening eased.”
Moya is referring to the rising stock market in recent days and a general calming of macroeconomic fears among investors. Often, a rise in stocks will also lift cryptocurrencies. He says investors are beginning to feel more optimistic about the economy, inflation, and rising interest rates, which is a positive sign for risky assets. Typically, the more confident investors feel about the stock market and the broader macroeconomic environment, the more risk they’re willing to take on.
Bitcoin rose above $23,000 on Tuesday, hitting its highest level in more than a month. Ethereum has been up more than 40% over the last few days and was trading above $1,500 on Tuesday.
Many crypto experts we’ve spoken to over the last few months have been expecting one last major plunge for the crypto market, with some targeting a bottom of anywhere between $10,000 to $14,000 for bitcoin. While that could still happen, Moya says if more institutions buy in over the coming weeks, that could allow for bitcoin’s bottom to have been made since “market positioning became extreme.”
What’s Next for the Crypto Market and How Should Investors React?
Less than a month ago, crypto was in the midst of one of the worst market crashes it has ever experienced. Bitcoin and ethereum were down more than 70% since the peak of last year’s bull run. Several high-profile crypto companies, most notably hedge fund Three Arrows Capital and crypto lender Celsius, filed for bankruptcy. The size of the industry itself had fallen below $1 trillion, a significant decrease from just a few months prior when it was worth more than $3 trillion.
But investors are holding out hope that the shakeout over the past few weeks is nearing its end, says Marcus Sotiriou, a market analyst at digital asset broker GlobalBlock. Crypto prices are pushing up as investors begin to feel more bullish toward the the crypto market, thanks in part to the recent rally in stock markets across the U.S., Europe, and Asia, he says. Cryptocurrencies, in particularly bitcoin, have been tracking closely with the stock markets since the start of the year.
“When the market starts reacting positively to negative news, this is a signal that a local bottom could be in for now, as fear may have caused the news to be priced in,” Sotiriou says.
Despite the positive momentum over the last few days, the crypto market is still suffering. Both bitcoin and ethererum are down more than 50% this year, and bitcoin posted its worst quarterly loss in more than a decade between April and June.
“We’re in a full-blown bear market, not a bear cycle. Just because we see some positive price action doesn’t mean we’re out of the clear,” says crypto expert and educator Wendy O. “We’re currently trading at $1,500 [for ethereum], and in order for me to be super bullish on ethereum, I would need to see us break above $2,248. That’s a 50% price pump right there.”
So, what does the latest crypto rally mean for investors? It shouldn’t significantly change your crypto investments or how you invest in crypto if you’re in it for the long haul. Given the crypto’s history of volatility, this increase doesn’t guarantee a long-term reversal. Crypto prices are just as likely to fall back down as they are to continue climbing.
Because the future of cryptocurrency is sure to include plenty more volatility, financial advisors recommend allocating no more than 5% of your investment portfolio to crypto and investing only what you’re OK with losing. Always make sure your financial bases are covered — from your retirement accounts to emergency savings — before putting any extra cash into a speculative asset like bitcoin or ethereum.
“We have a long ways to go before anything happens,” O says.
