After a short-lived rally, the crypto prices are once again on the back foot. With all of the major digital currencies dropping some 20 percent after gaining the biggest levels since the June crash, the cryptosphere is once more entering a period of uncertainty. Analysts agree that a period of difficulties and unclear possibilities for an improvement in markets is likely ahead.
In fact, many believe that the new yearly lows are only yet to be discovered and that the slump of June is only the jumping off the board for an even deeper decline. Presently, there seems to be very little that investors in cryptocurrencies, especially those who hold bitcoin tokens, can do about this situation. Instead, the combination of macroeconomic factors that are extremely negative and a prolonged instability in the crypto markets themselves promise a very somber start to fall 2022, followed by a sharp and cold new phase of the crypto winter.
August 19 Selloff
There has been a drastic selloff of digital assets that took place on August 19, 2022. It saw the total crypto market capitalization fall by 9.1 percent. More importantly, the key psychological support of the one trillion USD market cap was also breached and the plummet expanded in the days to come. That came as a very violent shock to those who believed that the 780 billion market cap lows from June 18 represented the bottom of the ongoing crypto winter.
For them, just at the start of August, that figure seemed like a distant unpleasant memory. Now, however, chances are high that the 780 billion support line will be tested more likely sooner than later. The process of testing, especially if it is repeated in the weeks of September and October, will open up the door for a drastic new low for the crypto market. That covers both the individual price of tokens, but also the combined market capitalization as well.
2022 is already a year of massive uncertainties. However, the level of regulatory uncertainty in the US got a huge shot in the arm thanks to the United States House Committee on Energy and Commerce. The government agency annoyed its deep concerns with the process of proof-of-work mining and the same branch of the crypto industry.
The agency said that these could very easily increase the demand for fossil fuels, which is not a good signal for the present year and the ongoing energy crisis. As a result of these warnings, the US lawmakers sent a request for the crypto mining businesses to define how much energy they consume and what their costs are. The same information will be used to assess the state of the crypto industry in terms of energy consumption and fossil fuel expenditures.
There are analysts who are positive that the strong daily corrections like the ones that took place on August 19 and then on August 20 are the new normal. That means that these will become more of a regular occurrence than any kind of exception, especially when the annual volatility of nearly 70 percent in the case of bitcoin is taken into consideration.
That level of instability, no matter if it is crypto prices, an esports league, a social media level of user engagement, or anything else points towards a system-wide characteristic, not some kind of an anomaly. The same analysts are also cautioning that taking too much out of any of these instances will not help anyone gauge future movements. Instead, it will simply pour fuel into the fire of worry, doubt, and instability in the same markets.
Bullish Sentiment Nowhere Around
In general, traders working in the crypto space are known for their bullish outlook. That has a strong root in the behavior of these markets in the last decade or so. With a modest start as a digital currency that can be used anywhere in the world without any support from the traditional banking or finance sector, bitcoin found its traction quickly enough. However, what led to its strong growth in terms of the value of its token and the market cap was the growth of the ecosystem around it.
Ethereum quickly after its launch began building a strong case for decentralized finance applications of dapps, working with the DeFi technology. Other improvements helped in the same domain and also expanded what means to use blockchain tech from the digital currency space. That expansion of tech is also the reason why so many traders were quickly tuning towards a bullish sentiment. But, in the present situation, there is a sense that the potential for the same tech advancement is very limited. Instead, the concept of NFTs is still the last big thing in the crypto industry and sadly, nothing major is on the horizon presently. Without that baseline support for a bullish outlook, the traders will continue to play the wait-and-see game. During its course, the doors to new lows in terms of price will just get wider and wider.
No Recovery Expectations
The optimism of early August is clearly all but gone. That is why experts have no definite vision of the depth and intensity of the plunge that will come in the near future, but they are certain that there are not going to be any sharp upwards movements anytime soon. The first bull target is now the one trillion market cap support line. It needs to hold steadily and with some force to signal that no drastic loss will take place. Presently, that figure is just around one trillion USD.
So, a chance for stabilization of the whole market is on the table. The problem is that all of the instabilities and negative factors are still standing as well. All of them together are pressing hard on the global economy and the crypto space is not able to avoid the same fallout. When its in-market instability is taken into consideration, it seems that the road down is much more traversable for the crypto markets than any road up and subsequent recovery.