What happened
After stocks rebounded last week, cryptocurrencies kept the momentum going over the holiday weekend, rising nicely after weeks of losses.
Over the last 24 hours, the price of the world’s largest cryptocurrency, Bitcoin (BTC 4.05%), rose roughly 2.3%, the price of Ethereum (ETH 3.38%) traded 2.4% higher, and the price of Cardano (ADA 17.28%) popped more than 15% as the network continues to see more utilization.
So what
Bitcoin has fallen close to 34% this year in the face of high inflation and the Federal Reserve’s aggressive rate hikes, which are expected to continue throughout the year. Those rate hikes have pushed up the yields on safer assets like U.S. Treasury bills, which make riskier assets like crypto less appealing to investors.
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But some analysts and experts now believe that Bitcoin may be turning the corner. Marcus Sotiriou of the digital asset brokerage GlobalBlock, based in the United Kingdom, said that $87 million flowed into crypto funds last week, a significant increase from the previous week in which there were $141 million outflows. For the year, crypto fund inflows only totaled $520 million, which is significantly lower than the $5.9 billion of inflows at this point last year.
Sotiriou in a research note said this “indicates that institutions and high net worth individuals have been net buyers throughout this bear market.” The analyst added, “I think this is further evidence that while the current macro headwinds exist, Bitcoin’s (BTC-USD) supply is being transferred from weak hands to those with long-term conviction.”
Analysts at J.P. Morgan also noted last week they think the fair value of Bitcoin is $38,000, which implies good upside from Bitcoin’s price of around $31,500, as of this writing.
In other news, the price of Cardano shot up today, as investors and experts point out that the network has now minted over 5 million assets such as non-fungible tokens (NFTs). Cardano, which has smart-contract capabilities, has also seen 92 decentralized applications built on the network since last August.
Cardano has been hammered this year, with its price per token down close to 55%, despite its big rally over the last 24 hours. But many are quite bullish on the cryptocurrency, which is viewed similarly to Ethereum but with supposedly much better potential for scalability and handling congestion on its network.
In June, Cardano is tentatively expected to complete a big upgrade to its network that will increase its scaling and smart contract capabilities.
Now what
It’s great to see crypto rallying, but I am not convinced investors have seen a bottom just yet for stocks or crypto.
The Fed will begin unwinding its nearly $9 trillion balance sheet in June, which means it will be selling or running off bonds from its balance sheet. This will effectively pull liquidity out of the economy, which could exacerbate the sell-off of risky assets. Perhaps it’s been priced in, but I’ll be curious to see how the market reacts once the Fed ramps up this process.
With that said, I am a believer in certain cryptocurrencies and see great potential in Bitcoin, Ethereum, and Cardano, so I do view the sell-off this year as a buying opportunity, but would point out that volatility may remain.