The crypto market has officially entered a bear phase after BItcoin’s right consecutive red weeks have caused the market momentum to slacken further. Altcoins are showing a high correlation to Bitcoin and are sliding, bringing the total market cap to $834.35B, down by almost 70% from its November 2021 peak ($3 trillion approx). Bitcoin’s dominance has increased over the last few months, which has made the market extremely receptive to Bitcoin’s downturn. Bitcoin currently stands below $17,000, having lost a large share of its value since the November peak. The Terra-UST disaster added more wood to the fire.  

By definition, a drop of 20% or more over a prolonged period of time is considered a bear market phase. Experts predicted that the bear phase would last till October 2022. But the reality seems to be different. However, there are several catalysts that could possibly trigger the next bull run in the crypto market:

#1 ETH Merge and the transition to Ethereum 2.0

The just completed Ethereum merge can be the biggest catalyst for the crypto ecosystem. Ethereum’s shift from the Proof-of-Work to the Proof-of-Stake consensus will make the largest dApps platform ‘a stock with a dividend yield.’ 

Experts state that Ethereum is highly undervalued, given its Defi and web3 utilities. The shift will bring much-needed speed, scalability, and greater traction to the network. Trinity Assets Founder and CIO Hawk Lee says, “If you look at a DCF [discounted cash flow], Well, we are basically looking at $10,000 ETH – with no terminal value assigned. So that tells you how much it’s underestimated.”

Ethereum is the second-largest cryptocurrency by market cap and is gaining over Bitcoin and is gaining against Bitcoin on several metrics, including active addresses, trading volume, transaction count, etc. If the ETH Merge is able to catalyze the bull run, ETH/BTC ratio is bound to improve. And if ETH is able to maintain its momentum for the next 4 to 5 years, it would be decoupled from BTC to set itself as a new standard for altcoins, becoming a significant determiner of how the market moves. 

#2 Corporations and Institutions Foraying into the Crypto Market

Time and again, we have vouched for institutional adoption to bring legitimization, broader trust, and acceptability for decentralized currencies. Several countries, including Nigeria, Brazil, Japan, Switzerland, Abu Dhabi, Canada, etc., have either passed or are in the process of passing progressive crypto laws to bring in innovation and development. 

The current bear phase hasn’t prevented institutions from putting their trust and money in cryptocurrencies. JP Morgan, Barclays, Microstrategy, Coinbase, Block, Galaxy Digital, etc., continue to hold on to their Bitcoin investments. Grayscale Bitcoin Trust (GBTC) has been a heavy influx of investors over the past weeks. Reports suggest that more bitcoins reside in these vaults than those new coins that are mined. Institutions are considering investing in bitcoin and blockchain investments via futures and crypto funds. 

#3 SEC’s Approval of the Spot Bitcoin ETF

In April, the US Securities and Exchange Commission (SEC) gave approval to the bitcoin futures exchange-traded product by Teucrium. This development has increased the chances of the SEC approving the spot bitcoin ETF. Spot ETF will open the road for more investors seeking to enter the crypto markets and drive up the demand further.  

Even Grayscale, the manager of the world’s largest bitcoin exchange-traded product, has petitioned the SEC to convert its GBTC to a spot bitcoin ETF. But the SEC has disapproved such applications citing investor interest. 

David Gedeon, head of multi-asset indices at Bloomberg, said, “[W]hether that’s new exposures in terms of bringing international securities into domestic investors for the first time — fixed income, futures, base commodities, physical base commodities, systematic factor strategies — there’s been so much evolution [that] it’s resulted in just massive revolution within the asset management industry.”

#4 Bitcoin’s Liquidity as the Final Push

Bitcoin’s liquidity can be the ultimate push to drive the markets out of the lull phase. Currently,

Lee throws light on what’s currently happening to all the bitcoins being purchased, “So, what’s happening is a lot of institutions are buying it, and then removing it and putting it on the shelf. So, in terms of the supply shock, it could come later this year.”

There are a number of other factors that, in confluence with the above, there are several other factors that can turn the tables in favor of a bull run. Bitcoin’s correlation with stocks and gold is high, and a possible upswing in the Wall Street stocks can push the crypto market’s prospects higher. Also, just like the 2018 and 2019 bear market revival, easy monetary policy on the part of the Fed and an influx of cash in the market may push investors to put greater trust and money in the market. 

Also, a favorable regulatory environment and an increase in the number of active bitcoin addresses on a monthly basis may act as boosters for the crypto economy. Cryptocurrencies are here to stay, and sooner or later, the bear phase has to subside. We can only wish for that to happen sooner, pushed forward by the factors we discussed in the post. Fingers crossed!