Bitcoin and ethereum prices could go in one of two completely different directions over the next few days or weeks, according to one expert.
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they could experience their biggest price drop this year or recover from here, never to revisit their summer 2022 lows again. Martin Hiesboeck, Head of Crypto and Blockchain Research at Uphold, thinks the former is more likely.
says that it will all come down to the evolution of the geopolitical situation between russia, china and nato. bitcoin and ethereum fell at the start of the week, as the rest of the global markets fell on fears that the us. uu. The visit of the Speaker of the House of Representatives, Nancy Pelosi, to Taiwan could significantly increase tensions between the United States and China. Russia has also stepped up its attacks on Ukraine and Europe is facing an energy crisis.
“The geopolitical situation is dominating the conversation. continuous war means continuous inflation,” says hiesboeck. “At the same time, we have a situation that we have never had before: almost full employment, expanding economy, and yet unprecedented price increases.”
here are two potential scenarios that could play out with bitcoin and ethereum in the short term:
scenario 1: investors continue to feel more comfortable with riskier assets
bitcoin and ethereum started the week on a slightly weaker note, but there is still more momentum behind digital assets than a few weeks ago.
bitcoin was above $23,000 and ethereum was above $1,700 on Monday; both were flat after finishing the month strongly. In July, ethereum rallied by more than 50% and bitcoin rose 20%, according to data from nextadvisor. In the past week alone, bitcoin reached almost $25,000 and ethereum topped $1,700. That’s a significant increase from just two months ago, when the cryptocurrency market crashed and bitcoin hit a low of $17,500.
The two largest cryptocurrencies have reached price levels in recent days that could continue to drive them higher, especially as most of the recent bad news has already been priced into the market, according to marcus sotiriou, asset market analyst digital global block broker.
after the federal reserve raised interest rates last week and a report revealed that the us. GDP fell in the second quarter, investors became more confident that the Federal Reserve could reduce its pace of tightening if the economy begins to stall. this led to a strong rally in stocks and cryptocurrencies, with July turning out to be the best month for the stock market since November 2020.
“In fact, the Fed is still tightening and inflation is still at a 40-year high, so we can’t be convinced of a market reversal at this time,” says Sotiriou. “but the fact that jerome powell has started saying that rate hikes have had a noticeable impact tells me that we’re in the latter stages of this bear market, which we’ve been in about 8 months now.”
While we’re still in a bear market, crypto expert and market analyst wendy o says technical charts show bitcoin in a short-term uptrend. however, she says that bitcoin would need to move above $26,700 for her to become bullish in the short term.
“Are we going to be able to do that? I don’t know yet, but one thing I’m noticing with bitcoin is that we kissed $24,800 [on July 30] and we had a couple of attempts to hold and turn around, but we couldn’t do it,” says O. “we could do a little test again, but then keep going up.”
scenario 2: the escalation of the global conflict drives the prices of cryptocurrencies to new lows
This week’s heightened geopolitical tensions sparked a new risk-off sentiment among investors, with cryptocurrencies, along with stocks, taking the biggest hit as they are seen as risky assets. Pelosi’s visit to Taiwan in particular rocked the boat, with China increasing its military activity in the area while Russia accused the US of “provoking” Beijing.
Cryptocurrencies could fall back to lows like we saw in June, possibly even lower, if geopolitical tensions continue to escalate around the world, experts say. While July was the best month since 2020 for stocks and cryptocurrencies, rising tensions between China and the US. The US, the world’s two largest economies, “will not support risk appetite anytime soon,” according to Edward Moya, senior market analyst at brokerage Oanda.
The cryptocurrency market has been closely related to the stock market since the beginning of the year, so if stocks fall due to the current conflicts in the world, chances are that cryptocurrencies will too. on top of that, the us the economy is struggling with four-decade high inflation, rising interest rates and a possible recession. Hiesboeck says there is more uncertainty surrounding US and world politics. uu. the economy means more unpredictability in the markets, and “investors don’t like uncertainty.”
“The rally in July was just an interlude, fueled solely by short-term opportunities and not long-term positioning by the major players,” hiesboeck says.
what market volatility means for crypto investors
Bitcoin, Ethereum and other cryptocurrencies are as likely to fall as they are to rise. If you are a long-term investor, short-term volatility should not drastically alter your cryptocurrency investment strategy.
Experts recommend sticking to bitcoin and ethereum, the two most well-known and established cryptocurrencies, and allocating no more than 5% of your investment portfolio to cryptocurrencies. Always prioritize the most important aspects of your finances, like saving for an emergency, contributing to a traditional retirement account, and paying off high-interest debt, before investing in cryptocurrencies. you should only invest what you’re okay with losing, experts say.
These two scenarios are reminders that cryptocurrencies are highly volatile and risky assets, even more so than stocks, and economic and political uncertainty can create even more volatility in the markets. While bitcoin and ethereum have seen some significant gains in the past week, they are still far from their all-time highs last November.
one thing is for sure: there is a growing list of possible concerns about us. uu. the economy and the escalation of the global conflict, so experts recommend playing it safe with your investments in the meantime.