Will Bitcoin and Ethereum Prices Sink or Swim? Watch these two factors in August for clues

Bitcoin and Ethereum prices could go in one of two completely different directions over the next few days or weeks, according to one expert.

They can either experience their biggest price drop this year or rise further from here, never to return to the low point from summer 2022 again. Martin Hiesboeck, head of blockchain and crypto research at Uphold, believes the latter is more likely.

He says it will all come down to the evolving geopolitical situation between Russia, China and NATO. Bitcoin and ethereum were both down on Tuesday as the rest of global markets fell ahead of fears that US House Speaker Nancy Pelosi’s visit to Taiwan could significantly increase tensions between the US and China. Russia has also stepped up its attacks on Ukraine, and Europe is facing an energy crisis.

“The geopolitical situation dominates the conversation. Continued war means continued inflation, says Hiesboeck. “At the same time, we have a situation we’ve never had before: near full employment, an expanding economy, and yet unprecedented price increases.”

Here are two potential scenarios that could play out for bitcoin and ethereum in the near term:

Scenario 1: Investors continue to be 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 there was just a few weeks ago.

Bitcoin traded just above $23,000 and ethereum traded near $1,600 on Tuesday — both down slightly after finishing the month strong. In July, ethereum rose more than 50% and bitcoin gained 20%, according to NextAdvisor data. Just last week, bitcoin reached almost $25,000 and ethereum passed $1,700. That’s a significant increase from just two months ago when the crypto 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 push them higher, especially since most of the recent bad news has already been priced into the market, according to Marcus Sotiriou, a market analyst at digital asset broker GlobalBlock.

After the Federal Reserve raised interest rates last week and a report revealed that US GDP fell in the second quarter, investors became more confident that the Fed could slow the pace of tightening if the economy begins to stall. This led to a solid rally for stocks and crypto, and July turned out to be the stock market’s best month since November 2020.

“The Fed is still tightening and inflation is still at 40-year highs, so we can’t be convinced of a reversal in the market at the moment,” says Sotiriou. “But the fact that Jerome Powell has started to say that the rate hikes have had a noticeable effect signals to me that we’re in the later stages of this bear market, which we’re about 8 months into.”

While we’re still in a bear market, crypto expert and market analyst Wendy O says technical charts show bitcoin is on a short-term bullish uptrend. However, she says bitcoin needs to move above $26,700 for her to be bullish in the short term.

“Are we going to make it? I don’t know yet, but one thing I notice about bitcoin is that we kissed $24,800 [on July 30] and we had a couple of attempts to sustain and reverse, but we couldn’t do it,” says O. “We might get a little retest, but then continue to go up.”

Scenario 2: Escalating global conflict sends crypto prices to new lows

Escalating geopolitical tensions this week led to a new risk-off sentiment among investors, and cryptocurrencies, along with stocks, were hit harder as they are seen as risky assets. Pelosi’s visit to Taiwan particularly 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 seen in June, possibly even further, if geopolitical tensions continue to intensify around the world, experts say. While July was the best month since 2020 for stocks and crypto, rising tensions between China and the US, the world’s two largest economies, “will not support risk appetite any time soon,” according to Edward Moya, a senior market analyst at brokerage Oanda.

The crypto market has been closely correlated with the stock market since the start of the year, so if stocks fall due to the current conflicts in the world, cryptocurrencies will most likely do as well. On top of that, the US economy is struggling with four decades of high inflation, rising interest rates and a potential recession. Hiesboeck says that more uncertainty about world politics and the US economy means more unpredictability in the markets, and “investors don’t like uncertainty.”

“The rally in July was just an interlude, driven by purely short-term opportunities and not long-term positioning by major players,” says Hiesboeck.

What Market Volatility Means for Crypto Investors

Bitcoin, ethereum and other cryptocurrencies are just as likely to fall as they are to climb. If you are a long-term investor, short-term volatility should not drastically change your crypto investment strategy.

Experts recommend sticking to bitcoin and ethereum, the two most well-known and established cryptocurrencies, and not allocating more than 5% of your investment portfolio to crypto. Always prioritize more 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 crypto. You should only invest what you are comfortable 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 of last November.

One thing is certain: there is a growing list of potential concerns over the US economy and escalating global conflicts, so experts recommend playing it safe with your investments in the meantime.