Has the crypto spring begun? – Forbes Advisor UK

With Bitcoin and Ethereum prices up 30% and 27% respectively since the start of the year, could the crypto winter that decimated the market in 2022 finally thaw?

Here’s a look at whether the recent trend is a blip or a sign of things to come.

Market themes

There are key themes within the crypto sector that can determine the way forward. They include regulation, the next Bitcoin halving and the wider economy.

Regulation

The UK government plans to bring crypto into regulation and treat it like any other financial product/service. As such, consumers would be better protected against bad actors.

The eventual implementation of a regulatory playbook would be a major confidence boost for both the reputation of cryptocurrencies and the sector itself.

Regulation in the UK will:

• protect investors’ money when a crypto business goes bankrupt
• ensure that crypto promotions are clear, fair and not misleading
• strengthen data reporting requirements for crypto firms and
• introduce measures to prevent pump and dump schemes where a person or organization artificially inflates the value of an asset for profit.

The protection of regulatory control can give consumers greater confidence that their money is safe and encourage wider participation and investment. If this happens, increased demand could push prices up.

2024 Bitcoin halving

We are just over a year away from the next “halving” of Bitcoin. In April 2024, the amount of Bitcoin given as a reward to miners who add a block to their blockchain will be halved, from 6.25 BTC to an estimated 3.125 BTC.

This will significantly reduce the supply of crypto-assets and, logically, increase demand as it creates scarcity.

Anticipation of the halving, even 13 months into the future, could begin to push up both demand and prices as speculators look to take advantage.

Economic factors

The value of cryptoassets largely mirrors the performance of the stock market, which means that they are affected by the same monetary policy and geopolitical and regulatory pressures.

Year-on-year inflation in the UK is believed to have peaked at 11.1% in October 2022 before falling in November and December before reaching 10.1% in January. In the same period, the Bank of England raised its base rate from 3% to 3.5% and then 4%.

Commentators agree that inflation is likely to fall through 2023, but disagree about the speed at which it might come down and how far it might fall. Falling commodity prices such as wholesale oil and gas point to a continued decline in inflation.

Although inflation is falling, it is expected to remain above the Bank of England’s target of 2% by the end of the year. The Confederation of British Industry (CBI), which represents employers, expects to end 2023 at 3.9%.

Meanwhile, the FTSE100 recently breached the 8,000 barrier in intraday trade for the first time, topping 8,026 before settling back around the 8,000 mark.

In 2022, the FTSE delivered a return of around 1%. Compared to the US S&P 500, which fell by 18% over the same period, this was relatively good news.

As of Tuesday, February 14, however, the index was up around 5% year-on-year, boosted by huge energy companies and speculation about acquisitions in the banking sector.

With a consensus of experts agreeing that UK stocks could continue to rise, the economic outlook could mean that crypto prices are poised to rise.

Expert opinions

Andrew Thurman, Researcher at the blockchain analysis firm Nansensays that there are signs that the market is going through a typical cycle that could see prices trend upwards, but that it is too early to tell if we are entering a crypto spring: “Throughout their history, crypto markets have proven to be notoriously cyclical , with multiple moves of 80% or more in major assets like BTC and ETH.

“But every time a pundit tries to declare crypto dead, the industry has roared back with a raging bull market.

“While it is too early to say that the same pattern will play out now, there are several promising signs of life for the crypto market. Key DeFi metrics such as the number of exchanges and active addresses have doubled since the start of the year, along with NFT- trading volumes.

“Total stablecoin supply – a proxy for whether traders think it’s worth keeping dollars on chain – has started to flatten after months of moves.

“If you’re someone who believes another textbook crypto cycle will play out, the evidence is increasingly on your side.”

Berk Ozdogan of decentralized crypto exchange Dexalot says prices will really start to change as regulation of the space moves forward: “I see the current state of the market as early days of maturation. Overall, I expect 2023 to be more of a sideways year than just an upward one, and I strongly believe that the next big cycle will be driven by regulation more than anything else.”

Dmitry Machikhin, CEO of crypto asset tracking website BitOK believes it would be premature to declare the start of the crypto spring: “Bitcoin and other coins are still too tied to the stock market and are not going to go away. The effects of the Covid-19 pandemic and inflation remain far-reaching, with no additional money entering the market to be invested in high-risk assets, as printing money is no longer an option.

“For now, the best hope for increased growth in the cryptocurrency market lies in the upcoming Bitcoin halving, which could provide new incentives for users and new money for the market. Until then, the trend is likely to remain weak and any brief flashes of growth are likely to be localized and not have a major impact on the overall market.”

Whitney Setiawan of Singaporean crypto exchange Bitrue believes broader economic signals point to a bear market, rather than a bull run: “We must bear in mind that the macro fundamentals of the markets are not as strong, and a change in Fed tone could potentially disrupt the formation of a sustainable bull run.

“For this reason, it would be safer to bet on a bear market rally rather than a full-fledged bull market. Apart from that, the bottom of the crypto price and the buy-the-dip mentality of crypto traders are the main drivers behind this significant price increase.

“Historically, bear market rallies with parabolic upward movement are quite common before a significant price decline, and this may be the case this time as well.”