Bitcoin Hits $25,000, Is The Worst Over For Crypto?
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There are reasons for optimism, but we are not out of the woods yet.
Important points
- Sentiment in the crypto market is the most optimistic it has been since April.
- Bitcoin briefly reached $25,135, but it could not hold above $25,000.
- Crypto still has many hurdles to overcome before we can talk about a recovery.
Bitcoin finally broke the $25,000 barrier last night, erasing some of its recent losses. According to CoinMarketCap data, it briefly peaked at $25,135, a level not seen since mid-June. Bitcoin yesterday closed up roughly 20% from the previous month, prompting some analysts to hope that the worst may be over for the crypto industry.
What’s Behind Bitcoin’s Recent Gains?
There are a few drivers for Bitcoin’s recent price increases. Market sentiment – a key factor in the crypto markets – has not been this optimistic since April. For months, the Crypto Fear and Greed Index has languished somewhere between “fear” and “extreme fear.” Yesterday it moved into “neutral” territory, reflecting a tentative sense of optimism.
It also seems as if the worst of the decentralized financial crashes may be behind us. After Terra’s collapse in May, the contagion spread to several other crypto lending platforms, including Celsius, further unsettling the crypto markets. Without being overly optimistic, if the aftershocks of Terra’s fall are over, the industry can begin to rebuild user confidence.
There is more and more correlation between crypto prices and global stocks, especially technology stocks. Stocks rallied last week on news that inflation had fallen slightly, raising hopes that we may have turned a corner. Strong jobs data and positive reports on company earnings contributed to investor optimism.
Is the worst over for crypto?
Breaking $25,000 is positive news, but Bitcoin has a long way to go before reclaiming last year’s highs of over $68,000. It’s also worth noting that Bitcoin couldn’t hold above $25,000 – it’s currently trading at around $24 000. We need to see Bitcoin stay above $25,000 or even higher before we can start talking about a recovery.
There are a number of factors that can stop this preliminary rise in prices. Here are some issues to watch for:
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- The global energy crisis: Russia’s invasion of Ukraine created a global energy crisis, pushing up prices in Europe, the US and many other countries. With winter approaching and no sign of an end to the conflict, this crisis is far from over.
- Inflation rates: Inflation has fallen slightly, but it remains high. Plus, if energy prices rise further in the coming months, there could be a corresponding increase in the cost of living. As we will get into in the next point, high inflation can trigger tough actions by the Fed, which has a knock-on effect on crypto.
- Federal Reserve Activity: The Federal Reserve’s efforts to tackle inflation have played a big role in reducing crypto prices this year. Economic policy tightening has caused investors to pull away from riskier assets such as crypto. All eyes will be on the next Fed meeting in September to see if it introduces another jumbo rate hike.
- Regulation: Increased crypto regulation is inevitable, but we still don’t know what form it will take — especially in the US, heavy regulation could have a strong impact on crypto prices in the short and medium term.
- Ethereum Merger: The long-awaited Ethereum merger is happening in mid-September, and will probably be the most important thing to happen in the crypto industry this year. Anticipation surrounding the merger continues to push ETH’s price up and generate positive momentum for the broader market. However, technical issues or further delays could reverse this sentiment.
Still plenty of reasons for caution
If you’re considering buying crypto in the coming weeks, tread carefully. Make sure you understand the risks involved and only invest money you can afford to lose. Bitcoin and other cryptocurrencies are still volatile assets, and there is much we do not know about how the market will develop.
It is extremely unlikely that Bitcoin will suddenly surge back to above $68,000 in the near future. So take your time, consider how crypto fits into your broader investment portfolio and cover your other financial bases – such as your retirement savings and emergency fund – before buying Bitcoin or any other crypto.
