Cryptocurrencies such as bitcoin and ethereum are making a strong comeback following the banking crisis that hit the US and Europe. With a bullish prediction
Cryptocurrencies have made a remarkable comeback following the prolonged crypto winter that began in 2018. With the sudden banking crisis that swept the US and Europe this year, bitcoin, ethereum, and other cryptocurrencies have been reinvigorated, with the bitcoin price bouncing back to $30,000 after a volatile month, while ethereum also surged after an institutional activity explosion.
The current stress in the traditional banking sector has solidified bitcoin's case as a "decentralized, trustless and scarce digital asset," according to Standard Chartered's head of digital assets research, Geoff Kendrick.
Kendrick's bullish prediction for bitcoin's market capitalization to reach $2 trillion, alongside its potential to hit $100,000 by the end of 2024, underscores the renewed interest in cryptocurrencies.
The Banking Crisis as a Catalyst for Cryptocurrencies' Resurgence
The banking crisis that has rocked the US and Europe this year has had far-reaching consequences. While banks' exposure to the energy sector and property lending has been cited as reasons for the current crisis, there is no denying that the traditional banking sector is undergoing significant upheaval. First Republic Bank's potential collapse and the previous collapse of Silicon Valley Bank and Signature Bank have renewed interest in cryptocurrencies such as bitcoin and ethereum.
The value of bitcoin and other cryptocurrencies lies in their decentralized nature, with no single entity controlling them, and their scarcity, as they have a limited supply. With a market capitalization of over $1 trillion, bitcoin has established itself as a trusted store of value, a means of remittance, and a branded safe haven. In times of crisis, such as the banking crisis, bitcoin's relative stability has made it an attractive alternative to traditional investment options.
Bitcoin's Halving and the Federal Reserve's Monetary Policy
Bitcoin's next supply cut, known as a "halving," is scheduled for April 2024. The halving is a pre-programmed event that occurs every four years, reducing the rewards for mining new bitcoins by 50%. This event reduces the supply of new bitcoins, making it a scarce digital asset. The previous halving events in 2012 and 2016 have been bullish catalysts for bitcoin's price, and the upcoming event is expected to be no different.
Moreover, the expectation that the Federal Reserve could ease its monetary tightening policy could also provide a boost to bitcoin's price. The Federal Reserve's monetary policy has a direct impact on the US dollar's value, with looser monetary policies leading to a weaker dollar. Bitcoin and other cryptocurrencies could benefit from a weaker dollar, as investors seek alternative investment options.
Ethereum's Resurgence and Institutional Activity
While bitcoin has dominated the cryptocurrency market, ethereum has also made a significant resurgence. Ethereum is the second-largest cryptocurrency by market capitalization, and its recent surge can be attributed to institutional activity. Ethereum is a blockchain-based platform that enables developers to create decentralized applications (dApps) and smart contracts. The rise of decentralized finance (DeFi) and non-fungible tokens (NFTs) has propelled ethereum's price higher.
DeFi is a blockchain-based financial system that eliminates intermediaries such as banks, enabling users to access financial services such as lending, borrowing, and trading without needing to trust a centralized authority. NFTs are unique digital assets that can be used to represent ownership of digital assets such as art, music,and collectibles. Both DeFi and NFTs are built on top of the ethereum platform, making ethereum a critical player in these emerging markets.
Institutional investors have taken notice of ethereum's potential, with major financial institutions such as JP Morgan and Goldman Sachs investing in ethereum-based projects. The Ethereum Improvement Proposal (EIP) 1559, scheduled to launch in July 2021, aims to improve ethereum's transaction fees by burning a portion of the fees instead of paying them to miners. This proposal could increase ethereum's scarcity, potentially driving its price higher.
What the Future Holds for Cryptocurrencies
The resurgence of cryptocurrencies is a testament to their resiliency and their ability to weather even the most prolonged bear markets. While the banking crisis has provided a catalyst for cryptocurrencies' resurgence, their value proposition extends beyond a crisis mode. Cryptocurrencies offer a decentralized, trustless, and transparent alternative to traditional investment options.
Bitcoin's market capitalization could reach $2 trillion, as predicted by Standard Chartered's Geoff Kendrick, while ethereum's potential as a platform for DeFi and NFTs could propel its price even higher. Institutional activity and improved transaction fees could further bolster ethereum's price.
However, cryptocurrencies are not without their risks. Regulatory uncertainty and volatility remain significant concerns. Governments around the world are grappling with how to regulate cryptocurrencies, with some countries outright banning them. Cryptocurrencies' volatility also remains a concern, with the bitcoin price experiencing wild swings in recent months.
The resurgence of cryptocurrencies such as bitcoin and ethereum following the banking crisis is a reminder of their potential as a decentralized, trustless, and scarce digital asset. With a bullish prediction for bitcoin's market capitalization to reach $2 trillion and its potential to hit $100,000 by the end of 2024, cryptocurrencies have reestablished themselves as a credible alternative investment option. Ethereum's resurgence and its potential as a platform for DeFi and NFTs could further cement cryptocurrencies' position in the financial ecosystem. However, regulatory uncertainty and volatility remain significant risks, and investors should proceed with caution. []
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