Over the past couple of days, the cryptocurrency markets have recovered somewhat, in light of making steep declines over the weekend after Ethereum completed its much-anticipated merge. Here are three major reasons crypto markets may be recovering:
1) The Russian mobilisation forces people to use crypto
Putin’s decision to announce a semi-mobilisation of Russian forces has heightened tensions in the region and around the world.
Forced conscription is just about the most serious thing a nation state can ask of its people, and to mobilise such a large number of men is extremely concerning.
Within Moscow and St. Petersburg, there have been some protests, and flights from Russian capital cities to Yerevan and Tbilisi are all but sold out.
It remains unclear for the Russian people how much the legislation (which is already not extremely clear) could change in the coming weeks as the war develops.
Usually, Bitcoin trades as a risk-on asset thanks to its correlation with the US stock market. The largest investors in Bitcoin are also invested in the stock market, and often cross-collateralised between the two.
However, for those who need Bitcoin thanks to the high degree of property rights that it offers in times of emergency, it is treated as a risk-off asset.
This is already evidenced in many countries around the world, particularly in Nigeria where 35% of the population holds at least some Bitcoin.
In times of heightened tensions such as these, Bitcoin can be a critically important tool for individuals to liberate themselves and preserve their sovereignty, even if they are to lose all their other rights and property.
2) Institutions continue to enter the crypto space
Institutions across the board have continued to enter the space, not only in terms of offering cryptocurrency services to their clients, but also in terms of acquiring more digital assets for their balance sheets.
Blackrock and Fidelity, two of the largest asset managers in the world, have both announced that they will be expanding their service offering to incorporate cryptocurrencies, which will not only provide far more legitimacy to the space, but will also ensure that many more people and institutions can be onboarded to the sector in a safe and regulated manner.
This sort of entrance to the market forces preexisting hegemons in the custody space, such as Coinbase and BitGo, to become more vigilant, since the level of competency amidst the competition has now risen so dramatically.
Other significant players, such as Grayscale, have been in discussions with the SEC over converting their fund into a BTC ETF.
Considering that Grayscale control 3% of all the Bitcoin in circulation, and their company charter means that the current way the fund is set up is such that the BTC can never be sold, the Grayscale Bitcoin ETF has the potential to be extremely bullish for the US markets as far as they relate to Bitcoin.
3) Further interest rate hikes seem unlikely
Many had prognosticated that further interest rate hikes would not come to pass given that this would mean that the economy would suffer immensely.
Analysts such as Raoul Paul were sceptical that the Federal Reserve would be able to raise interest rates again, and the initial shock of the announcement kicked the markets into high uncertainty and volatility.
Of course, there are those who believe that interest rates should be far higher than they are today.
During the inflationary periods of the 1970s and 1980s, interest rates were sometimes in the double digits.
Many think that if the Federal Reserve is serious about getting 8% inflation under control the interest should have been raised a lot more than just 75 basis points.
However, Jerome Powell is in a very tricky position, in that if he raises interest too much or too quickly, he runs the risk of completely crashing the American economy.
Assuming that the Federal Reserve doesn’t hike interest rates further, or that they even pivot on their decision and decide to lower interest rates (as Elon Musk has suggested), both traditional markets and crypto markets could be in line to begin making a more sustained recovery.
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