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July Marked a Turning Point for Cryptocurrencies but is it durable?

bitcoin technical

  • The market cap of all cryptocurrencies rose a whopping US$280 billion in July, after a painful selloff in May and June shook many weaker hands out of the market completely.
  • But stabilization of prices may be just that – stabilization, and may not represent a more durable uptick given the challenging macroeconomic backdrop facing all manner of risk assets, of which cryptocurrencies are a subset.

It may be too soon to mark a bottom in cryptocurrencies, but no doubt the tremendous rebound in prices in July would be welcome respite for an industry bracing itself for another prolonged winter.

The market cap of all cryptocurrencies rose a whopping US$280 billion in July, after a painful selloff in May and June shook many weaker hands out of the market completely.

Significantly, institutional investment products that track cryptocurrencies have hoovered up just below US$400 million in flows since the beginning of last month, chalking up the longest run of sustained weekly net inflows since March this year, according to CoinShares.

Short positions have also waned of late, with seller exhaustion appearing to be priced into decisions and the early signs of rebound are luring investors back into cryptocurrency markets once again.

The spectacular failure of a handful of high-profile cryptocurrency firms has rattled and continues to rattle investors, including the collapse of algorithmic stablecoin Terra, lender Celsius Network and hedge fund Three Arrows Capital.

Those failures also rippled over to investment vehicles such as ETFs and trusts such as the Grayscale Bitcoin Trust, which provide investors exposure to cryptocurrencies without needing to manage the complexities of self-custody.

The market capitalization of the 500 biggest cryptocurrencies recovered to just over US$1 trillion last month and inflows are improving token prices, with asset under management in institutional-grade cryptocurrency investment products back to US$30 billion, levels not seen since early June.

But stabilization of prices may be just that – stabilization, and may not represent a more durable uptick given the challenging macroeconomic backdrop facing all manner of risk assets, of which cryptocurrencies are a subset.

Persistently high inflation and central bankers determined to put a lid on price pressures by ratcheting up borrowing costs will mean that a clear pivot in policy will be needed before a bottom can be convincingly called.

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