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Bitcoin and ethereum prices could go in one of two completely different directions over the next few days or weeks, according to one expert.
They could either experience their biggest price drop this year or rally on from here, never to revisit their summer 2022 lows again. Martin Hiesboeck, head of blockchain and crypto research at Uphold, believes the former is more likely.
He says it’ll all come down to the evolving geopolitical situation between Russia, China, and NATO. Bitcoin and ethereum were both down at the start of the week as the rest of global markets fell ahead of fears that U.S. House Speaker Nancy Pelosi’s visit to Taiwan could significantly raise U.S.-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. Continued war means continued inflation,” Hiesboeck says. “At the same time, we have a situation we have never had before: almost full employment, expanding economy, and yet unprecedented price hikes.”
Here are two potential scenarios that could play out with bitcoin and ethereum in the near term:
Scenario 1: Investors Continue to Be More Comfortable With Riskier Assets
Bitcoin and ethereum started the week off on a slightly weaker note, but there is still more momentum behind digital assets than there was just a few weeks ago.
Bitcoin was holding steady near $23,000, and ethereum was trading above $1,600 on Thursday — both down slightly after finishing off the month strong. In July, ethereum rallied by more than 50% and bitcoin was up by 20%, according to NextAdvisor data. Just last week, bitcoin hit nearly $25,000 and ethereum surpassed $1,700. That’s a significant increase from just two months ago when the crypto market crashed and bitcoin hit a low of $17,500.
The two largest cryptocurrencies have reached price levels in the last few days that could continue pushing them higher, especially since most of the recent bad news has already been priced in the market, according to Marcus Sotiriou, a market analyst at 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 begins to stall. This led to a solid rally for stocks and crypto, and July turned out to be the stock market’s best month since November 2020.
“The Fed is still indeed tightening, and inflation is still at a 40-year high, so we cannot be convinced of a market reversal currently,” Sotiriou says. “But the fact that Jerome Powell has started to say that the rate hikes have had a noticeable impact signals to me that we are in the later stages of this bear market, which we are around 8 months into.”
While we’re still in a bear market, crypto expert and market analyst Wendy O says technical charts show that bitcoin is on a bullish uptrend in the near term. However, she says bitcoin would need to move above $26,700 for her to become short-term bullish.
“Are we going to be able to do that? I don’t know yet, but one thing I am noticing with bitcoin is that we kissed $24,800 [on July 30] and we had a couple of attempts to sustain and flip above but we were unable to do so,” O says. “We might get a little bit of a retest but then continue to go upward.”
Scenario 2: Escalating Global Conflict Sends Crypto Prices to New Lows
Escalating geopolitical tensions this week led to a fresh risk-off sentiment among investors, and cryptocurrencies, along with stocks, were hit harder as they’re seen as risky assets. Pelosi’s visit to Taiwan rocked the boat in particular, with China ratcheting up its military activity in the area while Russia accused the U.S. of “provoking” Beijing.
Cryptocurrencies could fall back down to lows as we saw in June, possibly even further, if geopolitical tensions continue to intensify around the world, experts say. While July was the best month since 2020 for stocks and crypto, rising tensions between China and the U.S., the two largest economies in the world, “won’t support risk appetite anytime soon,” according to Edward Moya, a senior market analyst at brokerage firm Oanda.
The crypto market has been closely correlated with the stock market since the start of the year, so if stocks fall because of the current conflicts in the world, cryptocurrencies most likely will too. On top of that, the U.S. economy is wrestling with four-decade high inflation, rising interest rates, and a potential recession. Hiesboeck says more uncertainty around the world’s politics and the U.S. economy means more unpredictability of the markets, and “investors don’t like uncertainty.”
“The July rally was just an interlude, fueled purely by short-term opportunities and not long-term positioning of major players,” Hiesboeck says.
What Market Volatility Means for Crypto Investors
Bitcoin, ethereum, and other cryptocurrencies are just as likely to fall as they are to climb. If you’re a long-term investor, short-term volatility shouldn’t drastically alter your crypto investment strategy.
Experts recommend sticking to bitcoin and ethereum, the two most well-known and established cryptocurrencies, and allocating no more than 5% of your investment portfolio to crypto. Always prioritize more important aspects of your finances — like saving up for an emergency, contributing to a traditional retirement account, and paying off high-interest debt — before investing in crypto. You should only invest what you’re OK with losing, experts say.
These two scenarios are reminders 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. While bitcoin and ethereum have seen some significant gains in the last week, they’re still far away from their all-time highs last November.
One thing is certain: there’s a growing list of potential worries over the U.S. economy and escalating global conflict, so experts recommend playing it safe with your investments in the meantime.