Why are cryptocurrency prices soaring?

A bitcoin over $30,000, an ethereum over $2,000, we hadn’t seen that for over a year. How to explain that the cryptocurrency market seems to be regaining strength when many economic or social indicators are negative, even pessimistic? Phonandroid takes stock.

2022 has been a bloody year for cryptocurrency investors. In an already bearish market, the price of altcoins plunged up to -90% on certain tokens. The top 10 have been battered, suffering from the scandals of Terralabs, FTX or Celsius. Bitcoin, the king of cryptocurrencies, has taken other cryptocurrencies with it as governments seek to regulate these decentralized markets, inflation soars, and the cost of energy and materials soar.

Not long ago, living investment legend Warren Buffet persisted in criticizing bitcoin, comparing it to a casino chip. And yet the cryptocurrency market has been experiencing a real euphoria in recent hours. We explain why.

Bitcoin price in dollars, its last 7 days (source: CoinMarketCap)

Why is bitcoin going up?

Around $16,000 at the start of the year, bitcoin has crossed the $30,000 mark since April 11. An exceptional coast that the king of cryptocurrencies had not seen since June 2022. Over the past seven days, bitcoin has achieved growth of more than 8% while the economy is not flourishing, despite the arrival of spring. The United States and Europe want to regulate the market. Inflation weighs on economies, the war in Ukraine persists, the energy market is soaring… Nothing very joyful.

Despite the financial scandals of an FTX or TerraUSD/Luna, the pressure of conventional banks on its customers, the desires of government regulation, cryptos are holding up. With the extreme volatility of its last months, some have sold everything, but many “HODL” (= Hold On for Dear Life” that is to say “Not to sell, as if your life depended on it”). Investors have more confidence in bitcoin, even more than in altcoins. They are called “bitcoin maximalists”. They believe in the concept of blockchain (decentralization, self-regulation…) and particularly in the Bitcoin project (seniority, scarcity…). The war in Ukraine even accelerated the adoption of bitcoin directly and indirectly.

Faced with FIAT currencies (currencies issued by each State) which are devaluing with galloping inflation and the goodwill of central banks, everyone is looking for a safe haven to preserve their capital. Traditionally, stone (real estate) and precious metals claimed this title of safe haven. Gold has taken +50% in dollars and even +70% in euros, in the space of 5 years. But keeping Napoleons or ingots is risky. Not everyone can dig a hole at the bottom of their garden. Cryptos are more liquid.

Gold-indexed cryptocurrencies such as Paxogold then emerged. But investors still prefer the king of cryptos, the unbeatable bitcoin and its 586 billion dollar capitalization. The partnerships created with companies, banks or countries are increasingly establishing the sustainability of bitcoin and the stability of its network. In addition, for the past few years, the price of BTC has been modeled on that of NASDAQ. As the NASDAQ recovers, bitcoin benefits. Experts are already hoping for a rebound above $35,000 and the triggering of a bull run. Is this finally the development of cryptocurrencies? At the beginning of the year, experts had already prophesied a bitcoin at more than 100,000 dollars…

Why is Ethereum going up?

The success of the king of cryptos (BTC) obviously benefits the entire crypto market and in particular Ethereum, its worthy vassal. The optimism around ether is explained for technical and psychological reasons. Technical first, because the Ethereum network has successfully updated its Shapella. Shapella is actually the contraction of two separate updates Shanghai and Capella. This update is an intermediate step leading to the transition from a PoW (proof of work) network to a PoS (proof of stake) network. In simpler terms, the ethereum network will become a more ecological blockchain, because it consumes much less energy.

Blockchains are usually based on PoW (like Bitcoin) and require very complex calculations to validate transactions. With PoS, an operation will be confirmed by a validator (computer or groups of computers) that has a good reputation on the network. Clearly, each new successful update proves that Ethereum will successfully transition and therefore be stronger.

Beyond the progression of the Ethereum network mutation, the Shapella update acts directly on investors. It allows ETH holders to withdraw their funds. It must indeed be remembered that the ethers were blocked since The Merge (initiation of the transition), that is to say September 2022. This is where psychology comes into play. Several experts expected a contraction of the market. ETH holders might have feared that there was an urgent need to sell, as the crypto market has been gloomy for several months.

The massive sale of ether would have melted the coast of cryptocurrency. And apparently, the opposite scenario is happening. Investors small and large alike are optimistic since the price passed the 2000 dollar mark just after the Shapella announcement. Since then, they have been slowly decreasing, but remain above 2000 dollars at the time of this writing.

Towards the end of the blood market in cryptos?

Phonandroid does not possess a magic ball or Doctor Strange powers. We cannot give short-term indications and even less in the medium term. The cryptocurrency market is renowned for its volatility: it’s a roller coaster in cryptocurrencies. In any case, the health of BTC and ETH also benefits altcoins. The positions of the FED and the US government will still be decisive in breaking the hesitations of cryptocurrencies.

Nb: this journalistic article is in no way financial advice.