Crypto markets have witnessed massive corrections in the last two months. As of today, the global cryptocurrency market cap has shrunk to $949 billion, from the $3 trillion high it touched in November 2021. Weak global cues amid heightened inflation and interest rate hikes have led to a massive sell-off in crypto markets. Investors and traders are now wondering whether the crypto markets will bounce back again this year. Crypto industry experts have different views on this question.
While some experts believe that crypto markets will bounce back from the current crash in the next few months, others think that investor wariness is going to persist in the near-short term.
“I strongly think crypto will rise again. By August 2022, the bloodbath and crypto winter should be over. By December end or January 2023, Bitcoin may rise to an all-time high of $70,000,” Dileep Seinberg, founder and CEO, MuffinPay, a bill payment and utility token, told FE Online.
“Few strong reasons besides geopolitical uncertainties are Crypto becoming recognised for its purpose and utility. Government regulations are going to be key drivers later in the year,” he added.
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The correlation between crypto and financial markets is growing. Cryptos have responded in tandem with the global financial markets that have also been hit due to weak global cues.
As inflation is going to persist for around two years, experts say that an imminent economic recession may continue to make crypto markets fragile.
“Given the high co-relation of equity and crypto markets, macroeconomic headwinds such as decade-high inflation and rising commodity prices adversely impact crypto markets. US Federal Reserve’s aggressive stance on quantitative tightening to tame inflation will further aggravate the downtrend in crypto prices. Since the US money supply has been growing at a rate of 18 percent, three times the growth rate, inflation will be around for a couple more years and is not transitory in nature,” said Sharat Chandra, VP, Research and Strategy at blockchain-based identity management platform EarthID.
“Fed has a challenging balancing act- to reduce inflation without risking stagflation. If Fed keeps increasing interest rates, the recession will be imminent and push equity and crypto markets into a tailspin. Crypto markets will continue to be fragile and investor wariness will persist,” he added.
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Rajagopal Menon, Vice President at crypto exchange WazirX said the inflation rate globally has been a major concern for investors. In the US, it is at a 40-year high at 8.6 percent and in the UK at 9 percent.
“Interest rate hikes across major crypto nations are also a growing concern as they lessen liquidity. Both the indicators have led to a massive sell-off. In India, the central bank raised the full-year forecast for the FY23 consumer price index to 6.7%, which is more than the target, and the Indian rupee has hit a record low of 78.28. Hence, the investors have adopted a wait-and-watch stance as the early indicators are in the red. We expect this bearish market trend to persist in the near short term,”Rajagopal Menon, Vice President, WazirX.
(Cryptos and other virtual digital assets are unregulated in India. They are considered extremely risky for investment. Please consult your financial advisor before making any investment decision)