The cryptocurrency markets seem to have stabilized after the hectic fall in prices at the start of February. This week, the start of trading took on a positive note and the same was seen in the total market cap. The same sum managed to go above the $400 billion as the collective of the market caps of all digital currencies.
Last week, the market was dominated by the sellers who managed to move a huge amount of money out of the market. The demand for cryptocurrency recovered, mainly in the form of bitcoin that remains the largest cryptocurrency both in terms of its price and market cap. Right now, the price is hovering around $8,800, but during the previous weekend, it reaches above the 9,000 range.
This is sending out a strong and positive psychological signal that the next natural jump point will take BTC, which is used for anything from online betting to crypto investment, over $10k. Other big digital currencies are following this trend.
Yet, the recovery is trailed by growing voices asking for bitcoin regulation in particular, but also the regulation of the entire cryptocurrency ecosystem. Right now, the same calls could provide to be either a benefit or a disservice to the cryptomarket.
The Comeback from the Dip
After bitcoin found some footing, other cryptocurrencies began moving in the same direction. On February 6, the overall market cap was valued at $276 billion. This was the lowest it has been in the previous 10 weeks. But, after that point, the markets began rising in price in a gradual manner.
Now, the market cap managed to rise about 55 percent from the biggest dip point in February, reaching about $430 billion. While the recovery is remarkable, it is still missing about $400 billion short of the biggest value reached in January. Back then, the market cap was valued at $830 billion.
So, all in all, the market confidence is back even though some resistance points remain, clearly below the old psychological benchmarks. This is true both for BTC and ETH, while other cryptocurrencies are on a slower recovery path.
Many are feeling especially optimistic about ether, which is up more than 15 percent. This impressive rise allows many supporters of the cryptocurrency to think about the possibility of ETH creating a stronger position in the market. This position could eventually rival that of a struggling bitcoin, but for now, such a prospect remains low.
The rebound effect has been noticeable in the crypto market, but there is still a bigger factor that shadows over the chance of another big breakthrough. Unlike in 2017 when the huge bull runs took BTC to $20k, calls for regulation are becoming stronger.
The latest one comes from a really important position of the head of the IMF. Christine Lagarde, the acting chief of the International Monetary Fund stated that the global regulation of cryptocurrencies is practically inevitable. According to her, the biggest concerns the IMF has over the digital currency field is their potential to be used in illegal activities, especially financial ones.
In an interview with the CNN, Lagarde stated that the IMF is actively participating in the process of anti-money laundering, but also in countering instances of financing for terrorism. These two, according to her, push the IMF towards the cryptocurrency fields and the ongoing struggle to regulate it somehow.
Forms of Legislation
Interestingly, Lagarde went further when she tried to provide a potential pathway towards the same regulation. According to her, it should be based on activity, meaning that it should focus on the activity of the entities in the crypto market, along with the checking if they are properly supervised and licensed.
Many analysts noted that Laggard’s attitude was already well-known, but that it might indicate a shift inside of the IMF. It could mean that the organization is taking a more active role in preventing any illegal use of cryptocurrencies.
Previously, Lagarde called for cryptocurrencies to be taken seriously and that the world governments needs to work together on rooting out any potential financial crimes. This was even more underlined with the potential of the criminal networks to use cross-border schemes on a global scale.
Similar calls could be heard on the Davos World Economic Forum where several financial leaders, especially those from the EU raised regulation concerns. They were also joined by Steven Mnuchin, potentially the most important figure in the group as the secretary of the U.S. Treasury Department.
Potential US Regulation
The good news for digital currency in 2017 came from the US in the form of bitcoin futures market. It is the sole thing, along with Japanese acceptance of bitcoin a few months earlier, that made 2017 such a dynamic year of crypto prices.
However, right now, a regulatory move by the US on a federal scale could really hamper any recovery process. It would surely spook any new US investors and stop the flow of inbound fiat into BTC. In crypto markets, like with many other digital ventures including eSports and social media, the news travels fast.
The confidence levels would drop drastically and the fears of a complete shutdown of transactions between banks and digital currency exchanges would ensue. Just as the case of South Korea panic showed, even a misinterpreted bad news can wreak havoc on the market.
The US regulation of bitcoin would surely have a butterfly effect on the entire marketplace, so for now, the hopes are that the Trump administration steers clear of any regulatory moves.
The recovery process for the February dip is going well, but the regulatory threat could stop that in its tracks. If bad luck would have it that this happens in a major country in the next few weeks, the drop will be bigger than the last one.
That is why traders and investors are waiting for a strong bull market that could enforce the setup for the oncoming storm. Sadly, as it stands today, the issue is not whether or not the storm will hit, but when will it commence.