After forging a minor recovery of sorts earlier this month, the crypto market has returned to exhibiting high levels of volatility over the past two w
After forging a minor recovery of sorts earlier this month, the crypto market has returned to exhibiting high levels of volatility over the past two weeks. This trend has pervaded the market since late last year, with the total market capitalization of the digital asset industry having dipped from an all-time high of $3 trillion back in November 2021 to its current levels of $1.08 trillion, representing a drop of over 65%.
This then begs the question: “How long is this volatility going to last?” especially since the macroeconomic conditions surrounding the global finance sector have continued to deteriorate steadily since 2020, i.e. following the start of the COVID-19 pandemic.
In this regard, Abdul Gadit, chief financial officer for automated digital asset trading platform Zignaly, told Cointelegraph that whether one likes it or not, the crypto market is now deeply connected with the traditional finance (TradFi) economy, with the two now beginning to follow a similar trajectory.
In his view, the reason for the ongoing choppy price action and lack of liquidity is extreme retail and institutional caution emanating from rising inflation and recessionary pressure. He went on to add that whenever things start to go south with the economy, investments — especially within the realm of crypto finance — tend to start slowing down. Gadit added:
“Right now, global markets are in the middle of this bearish cycle with the crypto industry getting tighter in terms of its trading ranges. This price action can continue for weeks, if not months unless there is a macro environmental change. Chances of that are fairly low.”
What lies ahead for the crypto market?
Andrew Weiner, vice president of VIP services for cryptocurrency exchange MEXC Global, told Cointelegraph that even though the cryptocurrency market is closely correlated with United States equities, an industry that has remained quite stable over the last few months, there is still a lot of volatility due to growing action within the crypto derivatives segment. However, he said that the crucial narrative dictating the price action of the digital asset sector — at least for now — is the Ethereum 2.0 Merge, adding:
“After the recent discussions surrounding the Merge, the market seems to have totally priced in its effects. If we look at things from a fundamental analysis view, the market has stopped bleeding and is getting ready to start recovering.”
To support this claim, Weiner alluded to his company’s research data, which suggests that from Aug. 8–14 alone, a total of 19 projects within the Web3 space raised a total of $501.3 million.
He pointed out that of this figure, the Metaverse, nonfungible tokens (NFTs) and GameFi projects raised $82, while decentralized finance (DeFi), Web3 and infrastructure projects raised a combined $379.3 million. Lastly, various blockchain firms were able to accrue approximately $40 million from various venture capital firms. “Fundraising events are actively going on, which is a good sign of the market,” he added.
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Charmyn Ho, head of crypto insights for digital asset trading platform Bybit, explained to Cointelegraph that global markets are experiencing volatility, as investors seem to be on the fence following the Fed’s Jackson Hole speech. She noted that with equities riding many highs and lows over the past two weeks, the global economy’s near-term outlook remains quite obscure, especially as consumers, investors and policymakers can’t seem to agree on whether the U.S. is in a recession or if the Fed has inflation under control. Talking about the crypto market in particular, she added:
“The main event riding price action is Ethereum’s Merge. Some actors, mostly miners who won’t be able to continue their operations on the post-Merge chain, are planning to keep the proof-of-work Ethereum blockchain going through the hard fork. All this has the ability to impact short-term prices. With Ether being the second largest cryptocurrency in the space, its price movements certainly possess the capacity to move the crypto market.”
Is the ongoing volatility going to subside anytime soon?
Himran Zerhouni, head of business development for decentralized creator-oriented Web3 platform Favor Labs, told Cointelegraph that the ongoing turbulence is largely driven by macroeconomic factors, primarily high inflation in the U.S. and Europe and the risk of a looming global recession.
Additionally, he believes that the digital asset market is also gripped by certain fears that have been provoked by the tightening of crypto regulation and the clear desire of world regulators to fully control the cash flows in cryptocurrencies. However, Zehrouni sees this trend potentially changing in the near-to-mid near term, adding:
“Over the coming year or so, the regulatory turbulence around stablecoins will subside. I suppose clear legislation for stablecoin…
cointelegraph.com