Outlook from Serhii Zhdanov, CEO of EXMO
How Does Inflation Affect The Crypto Market?
In previous years, we saw how aggravated inflation could boost local interest in buying cryptocurrencies. Among the most notable examples are Venezuela, Argentina and Turkey.
However, there is no evidence of such trends due to several factors. For more than a year, cryptocurrencies are no longer perceived as hedge assets; the crypto market itself experienced a major drop in May; crashes of multiple stablecoins like LUNA and UST followed by the bankruptcy of several landing crypto platforms… These events have damaged people’s trust and interest in cryptocurrencies.
The State Of Stablecoins
At the same time, we’re seeing some strengthening of stablecoins’ positions. Thus, the market share of the four largest stablecoins has grown from 6.5% to almost 15% over the year. Yes, this is largely due to the fall in the value of most cryptocurrencies. However, another reason may be that stablecoins are one of the options for moving away from a national currency that is losing value to a more understandable alternative that does not change its value against the US dollar. The increased attention from major regulators further confirms the importance of stablecoins.
Capital Inflows Amid Inflation
The recent data on crypto investment funds, very likely, indicates the increase of capital inflows as a reaction to the rising inflation. According to CoinShares’ latest weekly report, the inflow into digital asset funds was observed mainly on European exchanges. Actually the largest inflow this year was observed in Switzerland (about $600 million). Amidst the deteriorating economic situation, this trend may become stronger.
How Do Interest Rate Changes Affect Crypto?
In recent years, many players from traditional financial markets have entered the crypto world. On the one hand, the sector received an influx of new funds; on the other hand, they helped form a strong relationship between crypto and the stock market. For this reason, cryptocurrencies react almost in sync with the stock market to a rate increase. And the reaction is negative, of course.
Today, cryptocurrencies are perceived in many ways as a kind of shares, another asset for investment. Actually, it is not quite right since they were originally designed as an alternative to fiat currencies. I believe increasing crypto adoption and the growth of use cases will contribute to a gradual decoupling from the stock market.
Predictions For The Crypto Market In The Last Quarter Of 2022
Unfortunately, there are no signs of a turning point in the near future. Growth looks unlikely for the crypto market in Q4. For many economies, this winter will be a real challenge. In the coming months, many problems that can affect cryptocurrencies may appear. For this reason, we can expect increased volatility and panic. In general, this crypto winter is a period of testing. The uncertainties test the stability of all market players and identify weaknesses in the sector.
Opportunities and Progresses
Nevertheless, we’re already seeing significant progress in many crypto or blockchain projects: many teams are now presenting work plans, the results of which we will see next year. Also, don’t forget the upcoming Ether merges – the one that happened in September is just the first of five major upgrades.
In addition, a court decision in the case of the US SEC v. Ripple Labs will be issued in the coming weeks. The trial outcome will be important not only for Ripple itself but for the entire crypto market, since it will create a precedent in determining whether a digital currency is security.
Major Challenges In The Crypto World In The Near Future
For most projects in the crypto sector, the main task is to create a product that user finds necessary and handy. Cryptocurrencies should become more understandable and accessible. This is the main guarantee of mass adoption. So far, cases of real adoption are quite rare. Even the true advocates of cryptocurrencies simply hold their coins believing in their future, while not using them in everyday life.
Legislation and Regulation
For the same reason, the emerging legislation regarding cryptocurrencies is important today. The fact that most countries have not followed China’s lead and abandoned a total ban is a positive sign. However, regulators’ position on certain issues can lead to a slowdown in development or complete blocking of certain areas in the crypto market. The challenge is to find an acceptable balance between security and the possibilities of new technologies.