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What’s the Next Big Catalyst for Crypto?

By Evan Jones05/01/2023

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Bitcoin and the crypto market have seemingly come out of their hibernation. Bitcoin has finally broken $30k USD for the first time in almost a year, while altcoins continue to show resilience. It’s not some random occurrence that Bitcoin is performing well again either. There have been a few catalysts that are making Bitcoin and other digital assets attractive investments. Failures in the banking system, inflation, and regulatory cloudiness are all catalysts pushing crypto prices upwards, but what’s next?

Banking System Issues

One catalyst that has already occurred was the banking failures seen in early March. Silicon Valley Bank, previously the 20th largest bank in the US, and some other smaller sized xUS banks, collapsed. Withdrawals were halted, while FDIC insurance also failed to cover depositors with over $250k USD, as that is the limit of coverage for FDIC coverage. As you might expect, the banks were bailed out, much like the mortgage crisis of 2008 that spurred the creation of Bitcoin.

These banking events showed weakness in the traditional finance system while also reducing faith in it. This skepticism caused the weakest banks to face investor scrutiny, resulting in a major European bank, Credit Suisse, facing serious issues as well. Credit Suisse has since been merged with the Union Bank of Switzerland (UBS), in a deal that was forced by the Swiss government to prevent Credit Suisse from collapsing. It wasn’t really a deal UBS necessarily wanted to take.

Though the banking system has stabilized for now, the events were a wake up call for those who had a lot of faith in the traditional finance system. Since banks loan out the money you deposit, many people are beginning to wonder whether they can trust banks with their money, as it may not be there when they need it. This is especially true if a bank run were to occur. While crypto protocols like Terra collapsed because of a bank-run type of event, this was because the system had no authority to stop transactions. The reality of the traditional financial system is that if there’s a bank run on US banks, most of them won’t be able to survive either.

Inflation and Hyperinflation

It’s unlikely that you need to be informed about inflation and rising prices in the marketplace. It doesn’t really matter what you’re buying, it’s likely more money than it was at the same time last year. While most people are concerned about inflation, perhaps the more concerning possibility is hyperinflation. Hyperinflation can cause a fiat currency to spiral in value at an alarming rate, and has already happened in places like Venezuela and Turkey. In these countries, the fiat money is worth almost nothing.

While hyperinflation in developed countries like the US, Canada, or the UK is less likely than in less developed ones, it’s not impossible. With national debt in the US at an alarming high, and the amount of money they’ve printed over the past few years, there is a ridiculous amount of USD floating around. The same can be said of the Canadian dollar. If any developed country were to start experiencing hyperinflation, it would certainly push investors towards digital assets that have fixed, deflationary supplies. 

Regulation

One of the biggest issues for digital assets, apart from Bitcoin, is the cloudy regulatory laws surrounding them. While the SEC has previously stated that Bitcoin isn’t a security, they’ve been all over the place when it comes to defining any other digital asset. It’s hard for both institutional and retail investors to have any confidence in their investments when they aren’t sure what the assets are defined as.

Even at a recent congressional meeting with SEC chair Gary Gensler, there was no clarity provided. Despite being asked repeatedly to define Ethereum (ETH) as a security or commodity, Gensler refused to provide any clarity. He then went on to blame crypto for the recent banking failures. In response, there were many calls during the meeting by other members of congress to remove Gensler from his position. Members cited issues such as the reactive measures that the SEC has been taking rather than proactive, in conjunction with their frequent changes to regulations, sometimes within weeks of saying something to the contrary. 

While regulation is certainly necessary for crypto to continue moving forward, the regulations often being proposed by certain US politicians do nothing to help provide clarity. If and when crypto is properly defined under regulatory laws, it will allow the market to take shape with more certainty for investors.

Bitcoin Hash Rate at All Time Highs

Even though Bitcoin isn’t nearing all time highs, and is having some trouble holding onto the $30k USD threshold, Bitcoin mining is hitting all time highs constantly. Over the past couple months, mining difficulty and hash rate have hit all time highs, with the mining difficulty set to be its highest ever on April 20th. While this doesn’t mean that Bitcoin is set to take off to the moon, it bodes well for the number one crypto asset by market cap.

Bitcoin mining being at an all time high also provides a global perspective about Bitcoin’s future. If the majority of places in the world are willing to invest in Bitcoin mining, it seems likely that they believe it’s, at a minimum, a store of value worth pursuing. The more miners participating, the more secure the network as well, meaning that Bitcoin is becoming an even safer peer-to-peer payment system. 

Maybe the Catalyst Has Already Occurred

It seems likely that another banking collapse or hyperinflation in a more developed nation are catalysts that could push crypto markets further upwards. Perhaps though, the catalyst that crypto needed was the banking failures, as the events have created a lot of dialogue between regulators and politicians. Preventing it from happening again seems like a top priority, as does creating clarity regarding the definitions surrounding crypto assets. Regardless, without those banks failing, might not even be having these dialogues yet.

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cryptocurrency
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Evan Jones

Author

Evan entered the crypto scene in 2017, attracted to the many disruptive possibilities that blockchain could have on current world systems. He has a keen interest in decentralized services, payment processing, and viable NFT use cases such as event ticketing. He spends his days writing with his dog Kobe under his feet, if not on his lap.

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