The crypto market has come back to life after an amazing rally this year with the price of the world’s largest cryptocurrency. Bitcoin (Bitcoin -1.20%)has returned to around $22,500 after briefly surpassing $23,000 earlier this week.
Since late yesterday afternoon, the price of the second largest cryptocurrency, ethereum (ETH -3.30%)is trading down about 4.5% as of 10:56 AM ET today.On the other hand, the price of a large meme token is Shiba Inu (Sibu -4.69%) When dogecoin (doge -3.39%) They are trading down about 5.6% and 5.3% respectively.
There’s been a lot going on in cryptocurrencies lately, but I think the market dynamics are largely influenced by two factors: macroeconomic factors and the impact of FTX and subsequent confidence in the industry. It’s a crisis.
When FTX declared bankruptcy, many crypto contagions spread across the industry. Because other cryptocurrency companies have been involved with the company, investors simply lost confidence after what appeared to be a massive fraud brought the company down.
Bankruptcies and layoffs have plagued the industry since then. This morning, London-based cryptocurrency exchange Luno, owned by Digital Currency Group, announced it would lay off 35% of its workforce.
But another issue likely behind this year’s crypto rally and today’s decline is broader economic factors, including what happens to the economy and interest rate trajectory this year.
Inflation is showing signs of cooling, which is good for cryptocurrencies as it could allow the Federal Reserve to end its rate hike campaign sooner or later. The idea of an end to rate hikes may have driven crypto’s rally this year, as the spike in interest rates in 2022 has made risky assets like cryptocurrencies very unattractive.
However, the market may be ahead as many experts and investors predict the US economy will plunge into recession and the Fed will cut interest rates, further creating a risk-on environment for equities and cryptocurrencies. There is a nature. However, it remains to be seen whether there will be a recession that sets a rate cut scenario.
Yes, most economists are predicting a recession, but the labor market is still very strong and the economy may be holding up better than many expected. If this happens, no interest rate hike will take place, and interest rates may rise for an extended period of time.
“The signals are mixed in a way we’ve never seen before,” said Claudia Sahm, a former Fed economist and founder of Sahm Consulting. bloomberg“People say, ‘Historically, when this happens, it happens, and then we go into recession.’
With so much uncertainty about the trajectory of the economy and interest rates, cryptocurrencies will remain volatile until there is more clarity and will very likely fall again before finding a stable footing.
Also, I think the FTX situation and the cryptocurrency epidemic need to subside for investors to feel safe again.
In the long term, however, Ethereum looks bright for the future given its smart contract capabilities and the recent network upgrades developers have made to the network. I’m not interested in Dogecoin and Shiba Inu yet, but we’ll see how Shiba Inu works once Shibarium launches.