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Crypto industry poised for growth despite low BTC price

Mike Ermolaev   Jun 14, 2022 16:00 0 Min Read


   

 

  • Crypto market is in a state of fear as BTC's price sinks

  • Web3 is receiving massive investments plus investors stockpile Bitcoin

  • Regulations favorable to crypto are being developed

 

 

Bitcoin struggles to trade above $20K, and market participants await a long-awaited rally to new highs with every passing day. Considering that we haven't seen this yet, are there any positives to keep crypto enthusiasts' spirits high or is everything a negative?

The market overview 

The crypto markets have largely been sideways during the last week. Among the four sectors with the largest market capitalization, DeFi, Smart Contract Platforms, and Currencies saw muted returns while the sectors with lower market capitalization placed opposite directions. In its second consecutive winning week, Web3 ended the past week with a return of 6.02%. 

 

Source: Messari.io 

 

Market sentiment is negative at the moment, and the Crypto Fear and Greed Index shows extreme fear as the flagship crypto asset's price is at its lows.

 

Source: Alternative.me

 

However, above and beyond the current sentiment, the crypto industry is still far from dead, and sentiment can change very quickly. 

 

Investments are still flooding into the market. Thus, earlier this month, Binance launched a $500 million fund that will invest in Web3 projects, and Solana committed up to $100 million toward NFT and DeFi projects. Institutional investors continue to pour money into Bitcoin, with Andreessen Horowitz (a16z) raising a record-breaking $4.5 billion for a new crypto fund. 

 

An upcoming US crypto regulation is likely to boost the industry 

There is a new piece of legislation being pushed through Congress that aims to regulate crypto in the United States. The bill, dubbed the Responsible Financial Innovation Act, still has a long way to go, but some of its highlights are as follows: 

  • Since most cryptos will be classified as commodities, the CFTC will be responsible for regulating cryptocurrencies.

  • Tax exemptions will be provided for small crypto transactions under $200.

  • Regulations and full backing will be in place for stablecoins

  • Crypto trading platforms would have to register with the CFTC

  • Non-custodial wallets will be protected.

  • Uncertainty remains regarding NFTs and DeFi. 

 

The potential oversight of cryptocurrency by the Commodity Futures Trading Commission (CFTC) is viewed as a positive sign for the industry since the CFTC is seen as a friendlier regulator by the crypto community than the Securities and Exchange Commission (SEC) whose chair, Gary Gensler, has taken a more aggressive stance toward cryptocurrency. It is also expected to catalyze retail adoption, since its key points aim to protect the average consumer.

The CFTC already regulates futures contracts for Bitcoin and Ethereum. With the new proposal, the agency would be given wider authority by being allowed to monitor the spot crypto market, which would include a broader range of digital currencies. 

 

Bitcoin liquidity has improved this year 

In an indication of a maturing market, liquidity conditions, measured by the bid-ask spread, have improved relative to last year, in spite of recent extreme price movements.  A bid ask spread is the cost of trading and represents the difference between the highest and lowest offer for a trading pair. The chart below shows the bid-ask spreads for BTC/USD on major exchanges. With tighter spreads typically indicating greater liquidity, Gemini's spread has decreased by almost 3 bps, Itbit's by 1 bps, and Bitfinex and Kraken's by around 0.5 bps.

 

Source: Kaiko.com

 

Exchange outflows are at a peak 

 

Analyzing current investors' behavior, we can see that they purchase Bitcoin on exchanges and then move it to either their custodians or their cold wallets in order to hold it. 



Source: CryptoQuant 

 

We see that outflows are peaking in the chart above, which implies that investors are increasingly sending BTC outside for storage. It includes both moves out of exchanges by retail buyers, as well as custodial services provided to institutional buyers.

 

Exchanges’ outflows increasing is generally regarded as a bullish sign. When we observe this increase in activity, it is a powerful bullish signal since investors are actively stockpiling Bitcoin at a time when its price is low.

Conclusion 

The price of Bitcoin is currently hovering at low levels, but there are things happening in the deep waters of the industry, including massive investment outflows, favorable crypto regulations being drafted, and investors buying up the flagship crypto in anticipation of its upcoming price explosion. Furthermore, technical indicators suggest that a price rally and therefore an improvement in sentiment could soon follow.



P.S. This article was published on Invezz.

 


Image source: pexels.com


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