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Sunaxi 23 Aug 2023 ◦ 4 min read

What's Behind the Recent Crypto Rally

What's Behind the Recent Crypto Rally

2022 was full of events for the crypto world. It would be accurate to say that it was rough. And at the start of 2023 everyone froze in expectation of positive changes. 

The State of the Crypto Market as of Late 2022

Probably, the most anticipated event of 2022 was the Ethereum merge. United with their partner, the Beacon Chain, Ethereum made an important step away from the Proof-of-Work consensus to the Proof-of-Stake. 

The most shocking event, by all means, was TerraUsd and LUNA crash. Terra (UST) was one of the highly popular stablecoins. However, it was not linked directly to USD, it was backed by LUNA to protect it from possible USD volatility by the means of a deflationary mechanism. In May the market witnessed a sudden sell-off of $7 billion worth of UST. As a result, the price of the token decreased to $0.91, the ratio was broken, and panic began. This unfortunate scheme was followed by a liquidity crunch all around the crypto universe. 

The next surprise came from the FTX. When the US agency started an investigation concerning the fact that about $1 — $2 billion of customers’ funds disappeared. Finally, the company filed for bankruptcy.

These huge events could not go unnoticed. A lot of companies affiliated with the Terra blockchain or the FTX faced financial difficulties. This was the beginning of the crypto winter. In 2022 Bitcoin fell over 60%, forced by all the events. Crypto pessimists were loud and clear about the end of the whole industry.

However, let’s not focus only on the bad. 2022 started some major trends, such as Metaverse and NFTs. Step by step people are moving their lives online. The idea of owning real estate, attending concerts and weddings from the comfort of your own couch seems quite attractive. Such companies as Meta have also joined the flow.

Crypto payments are getting more and more widespread. Giant companies decided to give this opportunity to their customers. McDonalds, Starbucks, and Microsoft set a new trend. Financial industry also decided not to miss this hype. Visa and MasterCard announced crypto partnerships and their own projects. PayPal offered to buy and sell cryptocurrency. 

Active adoption of cryptocurrency by big companies and increasing interest from people motivate governments all around the world to finally wrap their minds about crypto regulations. However, we can now see two opposite trends. On the one hand the majority of the Western world is trying to increase governmental control in the industry. For example, the USA now considers anyone who makes transactions with cryptocurrency on behalf of someone else to be a broker. On the other hand, there are countries that are trying hard to use crypto to accept geographically unlimited donations or avoid sanctions.

2023: Starting the Year with a Bang

In spite of a very tough 2022, the new year started on a positive note. It is a well-known fact that the Bitcoin rate is being influenced by a number of factors, including inflation. Bitcoin was seen as a hedge against inflation. Unfortunately, last year showed that this assumption may be a mistake. The price fell and scared away a certain number of investors. With the inflation slowing down, BTC got a chance to change the trend. Other economic activities may cause shifts too. Thus it is also believed that the United States Federal Reserve may decrease interest rates, which would also have a positive effect. 

Another thing that affects Bitcoin significantly is the demand, which has been increasing all around the world recently. The CPI report, provided by the Bureau of Labor Statistics, showed some positive inflation data. According to this paper inflation for urban consumers declined by 0.1%. However, it is not the only index that can be correlated with BTC. All major indexes, such as Dow Jones, S&P 500, Nasdaq demonstrated amazingly positive data. At the same time, the DXY index is going down. Historically when the US dollar is cooling, the interest towards Bitcoin is growing. At this point analysts believe that if the Federal Reserve doesn’t toughen the current policy it may help to preserve the current upgoing trend. 

What’s Next for the Market

Social networks are filled with the main question: is this trend a new bull run or is it just a “bull trap”?

Even though the current situation looks highly attractive, it might be a good idea to be wise about the decision to jump right in. For example, Mark Monfort, the founder of the Australian DeFi Association and Web3 Venture Studio, says that what is happening on the crypto market at the moment may not be a turning point so many people are waiting for. It may be yet too soon to tell.

The current situation on the market is quite unique for cryptocurrency. It has never existed under the pressure of high inflation. These important points were pointed out by Bryan Ventura, a senior lawyer specializing in Web 3. He also emphasizes that the analysis of past trends can hardly be helpful in terms of predicting the crypto’s future.

Final Thoughts 

There are a lot of different opinions, some are full of hope and some are very cautious. Cryptocurrency has a great potential and holds a capacity to restore. However, everyone agrees that only time will show which theory was right. 

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