The two largest cryptocurrencies are still down more than 50% from their all-time highs late last year. Yet, in typical fashion, the crypto market rebounded significantly in July, with the price of bitcoin up more than 30% and ethereum up 70% since the market meltdown in June. Could that signal to investors that bitcoin and ethereum already passed the lowest price points of this cycle?
As of Thursday, bitcoin was inching closer to $25,000 and ethereum crept up above $1,900, following the release of July’s inflation data and new progress on ethereum’s massive software upgrade. Inflation eased a bit from historically high levels in July, which in turn, led to a rally in the stock and crypto markets. Ethereum, in particular, picked up some momentum this week after developers successfully completed another test on one of its test networks, called Goerli. The test simulated a process identical to what will happen on the main ethereum network in a month.
But some experts are still skeptical about what recent price jumps could mean long-term.
“The Fed is still indeed tightening, and inflation is still high, so we cannot be convinced of a market reversal currently,” says Marcus Sotiriou, a market analyst at digital asset broker GlobalBlock. “But the fact that [Fed Chairman] Jerome Powell has started to say that the rate hikes have had a noticeable impact signals to me that we are in the later stages of this bear market, which we are around eight months into.”
Have Bitcoin and Ethereum Prices Hit a Bottom?
Bitcoin and ethereum have gained positive momentum for a few weeks now. While the surge in bitcoin and ethereum’s prices have been impressive, crypto’s ties to the stock market could be a sign of future volatility.
The stock market had its best performance since 2020 in July and continues to show gains in August, so you could make an argument that crypto is currently benefitting from the rally in stocks, says Scott Sheridan, CEO of brokerage firm Tastyworks. By that same measure, if stocks weaken again, then crypto will likely follow.
“I’m not sure we’ve seen the bottom,” Sheridan says. “I think if you start seeing the market give up some of the recent gains, you’ll probably see something similar in crypto.”
Crypto educator and market analyst Wendy O also isn’t convinced bitcoin and ethereum have hit their lowest prices of this cycle yet. O says the market will see “true capitulation later in the bear market,” which she believes will last for another one to two years. Capitulation is the moment when investors lose all confidence in the outlook for prices, even after they have tumbled. These images show what capitulation could look like for bitcoin and ethereum over the next year, according to O.
Though crypto prices are impossible to predict with certainty, O says signs point to bitcoin and ethereum dropping back down past their June lows of $17,500 and $900. Continued economic and political uncertainty could create even more volatility in the market in the following weeks or months.
“In previous bear cycles, both cryptos have corrected 85%,” O says. “I anticipate bitcoin to hit $10,000 and ethereum to hit $750.”
What Crypto Investors Should Do Amid the Continued Volatility
The only thing guaranteed when it comes to crypto investing is volatility. Nearly one year ago, bitcoin’s price swung as high as $68,000 and now it’s back down below $25,000.
These ongoing fluctuations are a good reminder that not everyone has a risk tolerance for crypto. If you’re curious about crypto, keep in mind that investing in crypto is extremely risky and you should allocate only 5% of your investment portfolio to crypto assets. Even then, only do so if you have a high risk tolerance. There’s no guarantee that you’ll gain money — or even get back any money you put into the crypto market.
Only invest what you would be OK losing, and only after your other financial priorities are in order — like saving up for an emergency, paying down high-interest debt, and contributing to a traditional retirement plan.
Bitcoin and ethereum’s fluctuations so far this year show the extreme volatility crypto investors face. If you’re interested in investing in crypto, or you’ve already put some money in bitcoin, experts recommend not panicking over short-term fluctuations and focusing on the long-term growth potential instead.