After tumultuous times over the past few months, the crypto markets have since briefly shown signs of recovery. From Bitcoin asserting the price above $43,000 to judge developments coming from the biggest altcoins including Solana and Ethereum, we may be entering the consolidation phase earlier than expected. But, will the crypto markets be able to sustain a price rally and fight-off the volatile start to 2022 after a major stock market correction given the latest Fed announcement? Let’s take a look.
Bitcoin Is Growing
After the largest cryptocurrency in the world in terms of market cap crashed all the way to $40,000 from highs of $69,000 in November 2021, crypto markets have majorly declined in Q4 of last year. This can be attributed to news coming from the U.S Federal Reserve regarding the record-high inflation records due to excessive money printing since the start of the Covid pandemic. But, in order to tackle this, the Fed under Jerome Powell has announced incoming price hikes for interest rates that could be applied as soon as March of this year.
In response to this news, the US tech stocks in particular took a big beating for the past two weeks. Before the pandemic, crypto-assets like Bitcoin did not show any correlation to the movement witnessed among major stock indices. In fact, crypto and Bitcoin were majorly adopted in 2020 in a measure to diversify traditional asset classes with digital assets which have been termed as a hedge against inflation.
However, the correlation coefficient between Bitcoin and the S&P 500 has jumped from 0.01 in 2017-2019 to 0.36 in 2020-21. 1 being directly correlated, and 0 being no interrelation whatsoever.
But this week, cryptocurrencies and the stock markets have been growing side by side, showing signs of a mini-rally after the widespread market correction.
Bitcoin’s price crossed $43,000 on January 12, after briefly dropping below $40K just two days before. The last time the cryptocurrency sank this far low was in August 2021. Currently, Bitcoin is trading at a price under $44,000 as of January 13 and has gone up by 2.3% after rallying by 8% on January 12 as well, according to Coinmarketcap.
But, the main reason why investors should closely follow BTC’s price range in the next few days is due to the trading volume. Despite the price change only being 2.2%, the trading volume has gone up by more than 100% in the last 24 hours. Though such an event is not unprecedented after a mini-rally, it could be signs of a recovery from the two-month-long downtrend that affected the price performance of Bitcoin.
To support this theory of a possible price consolidation before a major price rally, another huge piece of news is making Bitcoin and the crypto space look highly bullish.
BTC Witnesses 4-month Highs In Outflow
BTC investors have been very active these past few days. On the same day BTC’s trading volume was up by over 100%, investors have been flowing the token among major exchanges. Data from the on-chain analytics firm CryptoQuant shows that 29,731 BTC left exchange order books on January 11. This is the highest single day range since September 10, 2021.
Samson Mow, the CEO of Blockstream, also noted that the current movement is a positive indicator for BTC performance. “Volumes are thin. That means the market can have huge moves up or down easily. Given that we had a big move down already, and everyone is buying like no tomorrow, I’d say the next move is up”.
But now that many altcoins have started contributing increasingly to the overall market’s price performance, positive news flowing out of the likes of Ethereum and Solana are further adding to the chances of an impending bull run across the space.
Ethereum 2.0 Deposit Contracts Valued At $30 Billion
Ethereum has been the pick of the altcoins this past week. After briefly falling below $3,000 this Monday for the first time since late September 2021, Ethereum has rallied by more than 13% in the past three trading sessions. Currently, Ethereum is trading at $3,350 with another 3.5% increase in the last 24 hours, according to Coinmarketcap. With a market cap of $400 billion and a 20% total market dominance of the cryptocurrency sector, why is Ethereum going up while the other altcoins have been trading sideways?
One of the most anticipated news from the entire crypto industry is related to the upcoming Eth2.0 update on the Ethereum blockchain. This update, which is supposed to take full stride by June of this year, will convert the blockchain from a Proof-Of-Work (PoW) to a Proof-Of-Stake (PoS) protocol. The reason is pinned down to the network’s excessively high gas fees and slow transaction throughput. While the likes of Solana and Matic can process more than 75,000 transactions a second, the current Ethereum network manages to process only 10-15 in the same time. The new update is expected to make the entire network more scalable, reduce the gas fees and increase the number of transactions per second.
Now, the latest news surrounding the update has to do with a break-through amount of tokens being locked on the Eth2.0 deposit contract.
The deposit contracts are bridging the tokens between Ethereum and Eth2 and allow users to transfer funds from Ethereum to the Beacon chain, which is the PoS network that is expected to be the platform on which Eth2.0 exists.
As of this week, the Ethereum 2.0 deposit contracts have crossed a total holding of 9 million ETH, which equates to $30.2 billion. The team at Ethereum have been working on the Beacon Chain since 2020, which is why investors are now waiting for the highly anticipated merging between the two platforms.
More and more have been depositing Ethereum on the new mainnent, because of the expected rally that would take place if the launch is successful. Many ETH holders can also choose to become validators and contribute to the success of the new network. But, in order to become an Eth2.0 validator, an initial deposit of at least 32 ETH, or more than $100,00 would be needed to be made.
But when we’re talking about scalability and large-scale adoption, the altcoin Solana is growing more and more popular among institutions and banks.
Solana Could Become The Visa Of Digital Assets
1 year ago, not many of us had even heard of the Solana cryptocurrency or its native token, SOL. The token has risen from just $1.5 in January 2021 to trade as high as $250 during June 2021. Currently, SOL is trading at $150, according to Coinmarketcap.
As mentioned above, the Solana network can process more than 75,000 transactions per second for a fee of just a few cents. Ethereum on the other hand charged users up to $250 per transaction on their network. Now, one of the biggest U.S banks, Bank of America claims that the Solana blockchain can become the ‘Visa of the digital asset ecosystem’.
The U.S based bank spoke about the popular altcoin stating that the network is great for scalability and user adoption, already having processed over 50 billion transactions since first launching in 2020. The token has a market cap of more than $10 billion and has even been the preferred network of minting almost 6 million Non-fungible tokens (NFTs).
The belief from the Bank of America is that altcoins that provide users with such effective prices and fast-moving transactions will see a huge outburst in the coming years. Since Web 3.0 based applications with the growing popularity of the metaverse and a need for more decentralised finance is increasing, Solana can be the central hub and even overtake Ethereum. Such a competitive battle is a huge plus for the overall cryptocurrency sector, with more developers looking for different options to use blockchain technology to create different virtual environments, technologies and applications.
Alkesh Shah, an analyst from Bank of America even sent out a note to the company’s clients on the benefits of the altcoin. “Solana prioritises scalability, but a relatively less decentralised and secure blockchain has trade-offs”, he said.
The possibility of Solana overtaking Ethereum is not impossible, but the current volatility of the markets makes it a very unpredictable bet.