Analysts Caution: Is It Too Early to Call the 'Crypto Spring' a Reality?

Analysts Caution: Is It Too Early to Call the ‘Crypto Spring’ a Reality?

23 February 2023

As the crypto winter thaws, industry participants are expressing a newfound optimism and enthusiasm for crypto, NFTs and DeFi. Although regulatory challenges remain, the crypto space has seen a resurgence in interest from investors keen to capitalize on sudden price rises.

Cryptocurrencies like Bitcoin and Ether have seen a remarkable 30% surge in prices since the start of 2023, with analysts being hopeful that this is an indicative trend to follow.

Lachlan Feeney, the CEO of Labrys, notes the crypto industry’s reputation suffered a setback in 2022. However, he points out that it was not because of any underlying flaws with blockchain technology; instead, this decline can be attributed to centralized entities’ irresponsible behavior.

Feeney says that, despite consumer skepticism in the wake of a tumultuous 2022 for cryptocurrencies, the industry is currently in a strong position. “Most of the leverage in the system has been flushed,” he said, adding that scams and other untrustworthy entities have been exposed while established players remain strong.

CeFi platform collapses have shown the importance of self-custody and decentralization, which will lead to increased on-chain activity in the foreseeable future, according to Feeney.

The Fed and Crypto: What to Expect?

With altcoins like Stacks (STX) and The Graph (GRT) showcasing gains of 200% or more this year, Dhruv Patel, CEO of Arch Lending, believes that the cryptocurrency industry could be in the initial stages of a crypto spring.

According to CryptoQuant data, the reserves of stablecoins held on exchanges in November showed a 25% decrease. Generally speaking, fewer coins being stored as reserves indicates higher buying demand.

According to Patel, many crypto enthusiasts and traders have been showing an increased interest in investing during dips, causing a surge in prices.

However, he warns that the combination of macroeconomic uncertainties, rising inflation, and future interest rate hikes means it is premature to confirm a halt in the downward trend for sure.

The Federal Reserve has made clear that additional rate increases are necessary to reduce inflation successfully.

Giles Coghlan, the Chief Market Analyst and Consultant for HYCM in the UK, suggests that short-term bullish trends could be limited due to this news.

According to Coghlan, Bitcoin closely follows the tech-heavy Nasdaq due to some very large institutional investors allocating their crypto and tech holdings together.

The Fed’s aggressiveness would also boost the US dollar, strengthening Bitcoin’s headwind, as he says.

Coghlan emphasizes that because tech stock performance is heavily reliant on the Federal Reserve’s position regarding interest rates, investors of these assets remain susceptible to their choices.

“This results in heightened risk for investors.”

If inflation and associated interest rates dip, both individual investors and major institutions might consider returning to Bitcoin, the expert believes.

Patel echoes this viewpoint, pointing out that investors are in a holding pattern as they watch for news of forthcoming FOMC meetings and CPI data releases before making any major investments.

Despite this, the fact that Bitcoin is trading just below $25,000 demonstrates its resilience and serves as an optimistic sign; especially when considering it was still hovering beneath $20,000 in 2022.

“There’s a lot of reason to be optimistic,” Feeney adds. “And [Ethereum’s] Shanghai Upgrade is the next of those.”

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