Cryptocurrency prices are not as high as they were during their glory days at the end of 2021, but they give investors reason to be optimistic again.
Bitcoin’s price topped $30,000 per coin for the first time since June 2022, and other cryptos like ether and crypto-centric stocks like Coinbase have also risen this year. Meanwhile, traditional financial firms continue to explore forays into the crypto world, with Nasdaq soon to launch its crypto custody platform.
But the crypto industry is still reeling from a tough 2022, which saw the implosion of trusted companies like FTX and interest rate hikes that weighed on financial asset prices. Is the crypto ready to continue its rally in the second quarter?
Bank Crash Hit Crypto
On Tuesday, bitcoin reclaimed the price of $30,000 per coin again. The largest crypto by market value is up around 80% since the start of 2023.
Some in the crypto industry say bitcoin could test its all-time highs this year – or even surpass them. For example, crypto exchange Gemini chief strategy officer Marshall Beard recently told CNBC that bitcoin could reach a price as high as $100,000 per coin. Others are less convinced, thanks to factors such as the recent string of bank meltdowns putting pressure on cryptos.
Madeline Hume, senior research analyst at Morningstar, says there will likely still be ripple effects from major crypto-adjacent firms shutting down in the first quarter of 2023.
“We expect the crypto market to continue to digest the ripple effects of the Signature Bank and Silvergate shutdowns,” Hume said. Silvergate Bank, a crypto-focused bank, announced its decision to halt operations in March amid regulatory review. Signature Bank, while not explicitly a crypto-centric bank, was a major crypto lender and followed the shutdown of Silvergate Capital a few days later.
Hume points out that the two banks were “essential on-ramps for people looking to exchange dollars for crypto,” and that their closures mean fewer opportunities for new money to flow into the space.
The outlook for crypto too – like the outlook for stocks and bonds – depends in part on what happens to interest rates. In an attempt to control inflation, the Fed raised interest rates, making it more expensive to borrow money. This tends to have a negative effect on the price of speculative assets like crypto. A recent report from Bank of America warned that crypto could have a tough year amid these rate hikes.
Ongoing Crypto Adoption and Regulation
Despite the challenges crypto faces, we are still seeing the adoption of crypto by major institutions – a move that experts say helps legitimize the asset class.
For example, the Nasdaq, a major exchange, is expected to roll out a crypto custody service by the end of the second quarter, pending regulatory approval. This news follows the expansion of Fidelity’s crypto-trading services to nearly all of its retail accounts.
Regulation also continues to be a priority for crypto investors. Crypto platform Coinbase recently received a warning from the Securities and Exchange Commission (SEC) that the regulator has identified potential violations of US law related to some of its crypto products in the latest example of an industry crackdown. .
Growing regulation is a polarizing topic among crypto investors, but many experts say regulation is good for crypto in the long run, mitigating risk for investors and potentially boosting capital inflows.
Seasonality Could Continue Crypto’s Momentum
Past performance does not guarantee how cryptos will perform in the future, but seasonal trends give us insight into how cryptos might perform over the next few months. A recent CoinDesk analysis shows that April is statistically one of the best months for crypto price growth. Bitcoin has averaged a 17% return in the month of April throughout the past decade, according to the analysis.
The crypto has also been more closely correlated to the stock market. We saw this play out throughout the first quarter of the year as the crypto rally came simultaneously with a stock market rally. April is historically one of the best months for the stock market.
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