This article was written exclusively for Investing.com.
- An annoying back and forth of prices
- Purchases feed on themselves
- A major market event
- Government intervention
- A major hack
After correcting their all-time highs on November 10, 2021, and hitting their lowest on January 24, 2022. Since then, the two major cryptos have settled into a trading range.
The settled at $40,000 as a pivot point, while Ethereum traded either side of $3,000 per token. While the market capitalization of the asset class hovers around $1.8 trillion, the number of new tokens hitting the market has steadily increased. As of the end of last week, over 19,200 cryptocurrencies were vying for capital.
After wild price volatility over the past few years, prices have stabilized. Price stability is a sign that the asset class is maturing. As liquidity increases, price variance tends to decrease.
Yet cryptocurrencies are in hibernation. However, the potential for another burst of explosive and implosive action could be on the horizon. Recent trading ranges suggest that major cryptocurrencies are tightly coiled springs that will eventually break up or down, and wild price swings may return.
An annoying back and forth of prices
Bitcoin has traded either side of $40,000 since the end of January 2022.
As the chart shows, the price went from a low of $33,076.69 to a high of $48,187.21, with an average of $40,631.95. While the leading crypto was just below the $36,000 level at the end of last week and is currently trading at $33,565, the $40,000 has been a pivot point where the price has consolidated since the January 24 low.
The chart above highlights Ethereum’s range since the end of January, which has been $2,163.316 to $3,579.866 per token, with an average of $2,871.591. At the time of writing, it is trading at $2,451.42.
If the $3,000 level was the pivot point for Ethereum, the token has been trading back and forth from the $3,000 level since hitting its low in late January.
Purchases feed on themselves
The dramatic rallies of bitcoin and ethereum over the past few years fueled a speculative frenzy that went crescendo on November 10, 2021. The price correction and consolidation dampened market enthusiasm, with many speculators stepping onto the key.
A break above the $48,200 level for bitcoin and $3,600 for ethereum would constitute a technical break and could cause buyers to return to the cryptocurrency arena. The bullish sentiment would be fuel for the asset class, with trend-following speculators returning to cryptocurrencies as buying will encourage other buyers.
But cryptocurrencies seem to be waiting for a trigger that would ignite the next rally. Here are 3 possibilities:
1. A consumer market event
At the end of 2017, the listing of the CME pushed the price of the token to the $20,000 level for the first time. The listing of the Coinbase (NASDAQ:) exchange on NASDAQ in April 2021 sent prices soaring. Events that increase the reach and visibility of the asset class tend to propel prices higher.
Some of the events that may be on the horizon are the growing acceptance by retailers and vendors that accept and encourage payment with cryptocurrencies. High-profile investors like Elon Musk, Jack Dorsey and other tech moguls have driven prices higher as market participants follow the leaders.
The current price weakness comes after Berkshire Hathaway’s (NYSE:) recent rally in Omaha, Nebraska. Warren Buffett and Charlie Munger are not fans. Mr. Buffett said he wouldn’t pay $25 for all the bitcoins in the world, and Mr. Munger called cryptocurrencies “stupid and evil.”
Comments from these highly-watched and highly successful investment managers cast a final dark cloud over the asset class.
2. Government intervention
Munger’s comment reveals the underlying problem that cryptocurrencies face. He called the word “evil” saying it “undermines the Federal Reserve system.” Governments are not fans of cryptocurrencies because they threaten the control of the money supply, taking it away from the government and giving it back to individuals.
Cryptocurrency enthusiasts who embrace the libertarian ideology of the medium of exchange agree with Munger, but support the idea of undermining the Federal Reserve system. Charlie Munger hit the mark by identifying the ideological divide between supporters and detractors of cryptocurrencies.
On the one hand, the evolution of the fintech revolution favors cryptocurrencies. On the other hand, traditional financial institutions and governments reject it because it takes them out of the equation.
MM. Buffett and Munger, government officials, and traditional financial firms would likely agree that Blockchain technology improves efficiency, transaction speed, and record keeping. However, they would like to exclude the tokens themselves, the actual cryptocurrencies, from the equation.
Munger noted that the leader of the world’s second-largest economy, Xi Jinping, was “smart enough to ban bitcoin in China.” Government intervention continues to pose the biggest threat to the asset class.
3. A major hack
Russia’s invasion of Ukraine, sanctions and retaliation all threaten an expanding economic war with the US and Europe on one side and China and Russia on the other . The ideological bifurcation created by the Sino-Russian “no limits” support agreement translates into an economic struggle between the two parties.
Hacking into computer systems is an integral part of modern cyber warfare. The rise of the cryptocurrency asset class makes it a juicy target for hackers looking to dig into computer wallets. Russia, China, North Korea and Iran have been hacking computer systems around the world for years. Ransomware payments are typically requested in hard-to-trace cryptocurrencies.
Any major hack of a cryptocurrency platform would scare market participants of this asset class, as happened in 2014 when the Japanese exchange Mount Gox went bankrupt after losing the 740,000 bitcoins of its customers as well as the 100,000 it had.
However, in 2014, bitcoin’s all-time high was more than 30 times lower than the current price. A hack now would be a substantial blow to the asset class.
Cryptocurrencies are consolidating above the low from late January, well below the highs of November 10, 2021. It seems that the asset class is waiting for the next big event to push cryptocurrencies in one direction or the other. other – either higher highs or lower lows.
The longer the consolidation, the greater the eventual movement. There is no doubt that cryptos will eventually move, but their direction will depend on the type and quality of obstacles encountered in the way of fintech evolution.
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Cryptocurrency Hybernation Could End Against These 3 Factors | Investing.com
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