According to an expert, bitcoin and ethereum prices could go in one of two completely different directions over the next few days or weeks.
They could experience their biggest price drop this year or recover from here, never to see their summer 2022 lows again. Martin Hiesboeck, Uphold’s head of blockchain and cryptocurrency research, believes the latter is more likely.
He says that everything will depend on the evolution of the geopolitical situation between Russia, China and NATO. Bitcoin and Ethereum both fell 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 US-China tensions. Russia has also stepped up its attacks on Ukraine and Europe is facing an energy crisis.
“The geopolitical situation is dominating the conversation. Continuous warfare means continuous inflation, ”says Hiesboeck. “At the same time, we have a situation we have never had before: nearly full employment, a booming economy and yet unprecedented price increases.”
Here are two potential scenarios that could occur with bitcoin and ethereum in the short term:
Scenario 1: Investors continue to feel more comfortable with riskier assets
Bitcoin and ethereum started the week on a slightly weaker note, but there is even more momentum behind digital assets than just a few weeks ago.
Bitcoin was trading just above $ 23,000, and on Tuesday, ethereum was trading close to $ 1,600, both slightly lower after ending the month strong. In July, ethereum rose by more than 50% and bitcoin rose by 20%, according to data from NextAdvisor. Just last week, bitcoin hit nearly $ 25,000 and ethereum surpassed $ 1,700. This is a significant increase from just two months ago when the cryptocurrency market collapsed and bitcoin hit a low of $ 17,500.
The two largest cryptocurrencies have hit price levels in recent days that may continue to push them higher, especially as most of the recent bad news has already gone public, according to Marcus Sotiriou, a market analyst at the digital asset broker. GlobalBlock.
After the Federal Reserve raised interest rates last week and a report revealed that U.S. GDP fell in the second quarter, investors became more confident that the Fed could slow its tightening pace if the economy starts to stall. This led to a solid rally for stocks and cryptocurrencies, and July proved to be the best month for the stock market since November 2020.
“The Fed is still souring and inflation is still at its 40-year high, so we can’t be convinced of a market reversal right now,” says Sotiriou. “But the fact that Jerome Powell has started saying that rate hikes have had a major impact signals me that we are in the later stages of this bear market, in which we are about 8 months.”
While we are still in a bear market, cryptocurrency expert and market analyst Wendy O says the technical charts show that bitcoin is on an uptrend in the short term. However, she says that bitcoin would have to rise above $ 26,700 to turn bullish in the short term.
“Will we be able to do it? I don’t know yet, but one thing I’m noticing with bitcoin is that we kissed $ 24,800 [on July 30] and we made a couple of attempts to sustain and flip, but we weren’t able to do that, “says O.” We could do some retesting, but then keep climbing. “
Scenario 2: Escalating global conflict drives cryptocurrency prices to new lows
The escalation of geopolitical tensions this week has led to a new sentiment of risk appetite among investors and cryptocurrencies, along with stocks, have been hit hardest as they are considered risky assets. Pelosi’s visit to Taiwan shook the situation in particular, with China stepping up its military activity in the area while Russia accused the United States of “provoking” Beijing.
Cryptocurrencies could return to lows as we saw in June, perhaps even further, if geopolitical tensions continue to escalate around the world, experts say. While July was the best month since 2020 for stocks and cryptocurrencies, rising tensions between China and the US, the world’s two largest economies, “will not support risk appetite anytime soon,” according to Edward Moya, senior market analyst at the company. brokerage agency Oanda.
The cryptocurrency market has been closely correlated with the stock market since the beginning of the year, so if stocks fall due to the current conflicts in the world, cryptocurrencies will most likely too. Furthermore, the US economy has been struggling with high inflation for four decades, rising interest rates and a potential recession. Hiesboeck says that greater uncertainty about world politics and the US economy means greater market unpredictability and “investors don’t like uncertainty.”
“The July rally was just an interlude, fueled solely by short-term opportunities and not by the long-term positioning of major players,” says Hiesboeck.
What market volatility means for cryptocurrency investors
Bitcoin, ethereum, and other cryptocurrencies are as likely to fall as they should rise. If you are a long-term investor, short-term volatility shouldn’t drastically alter your cryptocurrency investment strategy.
Experts recommend sticking with bitcoin and ethereum, the two best known and most established cryptocurrencies, and allocate no more than 5% of your cryptocurrency investment portfolio. Always prioritize the most important aspects of your finances, such as saving for an emergency, contributing to a traditional retirement account, and paying off high-interest debt, before investing in cryptocurrencies. You should only invest what you feel like losing, experts say.
These two scenarios are a reminder 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. Although bitcoin and ethereum have seen some significant gains over the past week, they are still far from their all-time highs from last November.
One thing is for sure: There is a growing list of potential concerns about the US economy and escalating global conflict, so experts recommend playing it safe with your investments in the meantime.