Ticker Symbol: BTC, ETH
The Bitcoin/USD exchange rate rose 2% in the morning trading session to take the cryptocurrency above the $24,000 level. Ethereum also rose 2% to last exchange hands at $1,600. Both cryptocurrencies have surged from a year-to-date bottom hit earlier in the year. Bitcoin prices are up 20%, while Ethereum prices are up 50% in the last seven straight days of price rises.
The gains come ahead of Ethereum’s approaching switch from a proof-of-work system to a proof-of-stake system, known in the industry as “The Merge”. The upgrade has recently been rumored to go live soon. The switch would reduce the energy consumption required to mine the currency by close to 99.95%. Experts and developers in the digital currency space have described the event as one of the most significant upgrades in the history of the nascent asset class.
Despite the recent bounce, Bitcoin is still down almost 50% on a year-to-date basis, far greater than the correction in the Nasdaq 100 Index, which is down roughly half that at 25%. Surging inflation has forced the Federal Reserve to raise rates and withdraw liquidity from the financial system, pushing high-risk assets such as growth-oriented technology shares and cryptocurrencies into a bear market, which is officially defined as a slide of 20% or more from recent peaks.
Furthermore, the war between Ukraine and Russia could push the global economy towards stagflation, which is the phenomenon of muted GDP growth combined with soaring inflation. In such an environment, investments that do not generate a cash yield suffer the most from deteriorating investor sentiment. The sharp drop in cryptocurrency prices and souring of investor sentiment has been described as the “Crypto Winter”.
Increased regulatory scrutiny has also impacted risk appetite. The U.S. SEC has recently proposed changes to the supervisory regime of crypto assets such as stable coins, decentralized finance platforms, and currencies. Cryptocurrencies utilizing the blockchain have also not gained widespread adoption for payments, with Bitcoin and Ethereum accounting for fewer than 0.1% of all transactions in the U.S.
The upgrade to the Ethereum system however could continue to boost prices in the short term. Other cryptocurrencies such as Cardano, Polkadot, and Binance Coin are also gaining, and the aggregate crypto market capitalization returned to above $1 trillion for the first time in six weeks. Crypto-oriented companies are on a tear recently, with firms such as Coinbase, Core Scientific, MicroStrategy, and Marathon Digital all rebounding handsomely.
This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.
