Crypto markets are flashing both bullish and bearish signals as digital assets display early-year volatility, according to analytics firm IntoTheBlock.
In a recent newsletter, the market insights platform says there is uncertainty for the crypto markets moving forward as both bears and bulls have good cases to be made.
The bull case is centered around the growing number of addresses that hold Bitcoin (BTC), the number of transactions taking place on leading smart contract platform Ethereum (ETH), and the change ETH made in handling token supply.
Outside of the top two crypto assets, the bull case also rests on the growing popularity of non-fungible tokens (NFTs), play-to-earn blockchain games, and decentralized autonomous organizations (DAOs).
The data shows that despite seeing its price dip recently, more investors are holding on to BTC, unlike in January 2018 when 25% of Bitcoin traders liquidated their tokens after the top crypto by market cap suddenly crashed from $20,000 to $6,000.
Similarly, the analytics firm found that the number of daily transactions taking place on ETH held strong during the latest crypto market pullback despite dipping by a staggering 65% just two months after the 2018 crash.
Other potential catalysts include ETH’s token-burning mechanism introduced during the London upgrade, NFT marketplace OpenSea reaching a $13 billion valuation, more widespread coverage of DAOs, and blockchain-based games bringing users over to cryptocurrencies.
The bear case revolves around the actions of the Federal Reserve, the possibility of a new Covid-19 variant, and the four-year cycle theory.
The Fed recently announced it would be attempting to curb inflation via normalization of its balance sheet, or quantitative tightening (QT). According to IntoTheBlock, this could potentially decrease the supply of USD, which is correlated to the price of BTC.
“The high correlation between the two implies a negative outlook for Bitcoin if the Fed moves ahead with QT and raises rates aggressively.”
Other bear flags include the tendency for BTC to reach new all-time highs every four years (2013, 2017, 2021) and then crash the following year, and the possibility of a stronger Covid strain that would induce lockdowns that hinder the economy.
“Overall, the macro environment signals risks to be considered by investors. While there are still reasons to believe in crypto’s continued growth in 2022, there is a considerable amount of uncertainty.
Ultimately, these market forces are likely to play out in the upcoming months as the market gets more clarity from the Federal Reserve and activity from NFTs, gaming and DAOs seek to propel crypto to new highs.”
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