According to analytics firm IntoTheBlock, the crypto market is sending both bullish and bearish signals as the digital asset shows volatility at the start of the year.
In a recent press release, the platform said there are future uncertainties for the crypto market as both bears and bulls have good cases that need to be made.
The bullish case focuses on the growing number of addresses holding Bitcoin, the number of transactions taking place on the leading smart contract platform Ethereum, and the shift in ETH taking place in token supply.
Alongside the top two crypto assets, the bullish fall stems from the growing popularity of NFTs, play-for-money blockchain games, and decentralized autonomous organizations (DAOs).
Data shows that despite the recent price drop, more investors are holding BTC, unlike in January 2018, when 25% of Bitcoin traders liquidated their holdings after the leading cryptocurrency’s market cap suddenly dropped from $20,000 to $6,000.
Source: IntoTheBlock
Similarly, the analytics firm found that the number of daily transactions on ETH remained stable during the crypto market’s recent crash, while falling by a staggering 65% just two months after the 2018 crash.
Source: IntoTheBlock
Other potential catalysts include the ETH token burn mechanism launched during the London upgrade, the OpenSea NFT marketplace reaching a $13 billion valuation, broader coverage of DAOs, and other potential catalysts.Blockchain games expose cryptocurrency users.
Although the mechanism behind Ethereum’s supply drop is complex, one of the simplest indicators also brings positive news. Both Bitcoin and Ether prices have made higher highs and lower lows which was not the case in January 2018.
Source: IntoTheBlock
The bear case revolves around Federal Reserve (Fed) actions, the possibility of a new Covid-19 variant and the four-year cycle theory.
The Fed recently announced that it will attempt to contain inflation through balance sheet normalization or quantitative tightening (QT). According to IntoTheBlock, this could reduce the supply of USD, which correlates with the price of BTC.
“The high correlation between the two implies a bearish outlook for Bitcoin if the Fed tightens quantitatively and hikes rates aggressively.”
Source: IntoTheBlock
Other bearish signs include BTC’s tendency to hit new all-time highs every four years (2013, 2017, 2021) and then crash the following year, combined with the possibility that Covid stress will cause stronger lockdowns to hamper the economy.
“In general, the macro environment signals risks for investors to consider. While there are still reasons to believe in further cryptocurrency growth in 2022, there is still a great deal of uncertainty.
Ultimately, these forces will likely come into play in the coming months as the Fed provides clearer signals and activity from NFT, gaming and DAO to push crypto to new highs.”
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