Today's (11.04) breakthrough of the US$30,000 level in the price of bitcoin appears to be due to several factors. One of these may be an update to ethereum's second largest cryptocurrency called Shanghai. It introduces new features and improvements, including the withdrawal of up to US$34 billion worth of tokens deposited on the network. Despite the expected increased supply of the cryptocurrency, the market seems to be taking the update positively as the next step in development. These expectations may have led to price increases for most cryptocurrencies.
Shanghai update for ethereum
Ethereum, the world's second-largest blockchain network, plans to roll out an update with new features and enhancements, including the so-called EIP-4895. This will enable the withdrawal of up to $34 billion worth of ether tokens deposited on the network. Concerns about a fall in the price of the cryptocurrency have arisen due to a possible sell-off by ether token holders. However, data provider CryptoQuant believes that large sales should not be expected after the update, as the withdrawal process could take up to a year and most ether tokens are still holding losses compared to the price at which they were deposited.
According to experts, the long-term benefits of the upgrade would be significant, with ether becoming the benchmark for cryptocurrencies in terms of passive income. The ether payout system could also prevent a token sell-off, and it is possible that a significant proportion of ether tokens would remain on deposit, with deposit benefits exceeding current interest rates.
Source: Tradingview
Adverse economic situation favourable for bitcoin
Another reason for the increases appears to be worsening economic readings, particularly those from the United States. Factors in the form of rising unemployment concerns, problems in the US banking sector and falling inflation in the US are increasingly setting the market up for a change in Fed monetary policy. Here it is worth recalling that cryptocurrencies are sometimes referred to as the children of low interest rates. This is because a significant proportion of them were created as a result of excess money in economies. When interest rates were rising, the price of bitcoin fell 76% in relation to its peak. Currently, investors are already expecting an imminent end to the cycle of interest rate rises in the USA, followed by a series of reductions. The conclusion may therefore be that the price of bitcoin is largely dependent on expectations of interest rates.
Source: Tradingview
Sentiment on bitcoin
The final element that may have influenced the BTC price rise was the extreme negativity of investors and the media towards the entire digital currency market. Interestingly, the cryptocurrency's price bottom coincided with the announcement of the 'end of cryptocurrencies' by major and well-known portals. According to data from Sentimenti, a company that analyses emotions in markets, attitudes in social media have now changed from a predominance of fear and anger to a predominance of joy and confidence in bitcoin.
Source: https://sentistocks.com/predictions/
What lies ahead?
If the trend of deteriorating economic readings continues and leads to a change in Fed policy, there is the possibility of continued increases in the cryptocurrency market. This could also be influenced by new money coming into the market, the level of which could be indirectly determined by changes in stablecoin capitalisation (volume). At the moment, stablecoin capitalisation is credited with another 2% drop in value on a monthly basis.
Source: https://btctools.io/stats/market-cap
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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