Posted 12 months ago | by Ben Armstrong

Crypto Prices on the Rise – Look out for Contagion

Cryptos prices have bounced back big time from their recent weakness. It isn't difficult to see that the big crypto crunch that happened a few months ago was brought on by external forces – namely the massive crash in the established financial markets.

Like many 'risk assets', cryptos have bounced back strongly. There may be more momentum left in this move, but there are also warning signs flashing in the same markets that brought crypto prices down earlier this year.

Recent Crypto Prices: Key Takeaways

Bitcoin and Ethereum have both risen sharply over the last month. Bitcoin is within $3000 USD or so of the highs it logged in February of this year, and it has shown an incredible resistance to any sort of selling pressure.

It would be nice to point to bullish factors like the fact that global central banks have expanded the money supply in a wild and irresponsible way over the last three months, or that Western governments are giving away money like drunken fools, but when we look at the BTC chart, it is easy to see that BTC has tracked major stock markets up since they both bottomed in March

While it is possible that risk assets (not that BTC et al. are the same as equities or junk bonds, but they are trading that way) may just keep going up, it is pretty likely that over the next month (or next few hours), risk assets will be slammed again, as the world wakes up to what a global lockdown does to the economy.

It Might Not be About Adoption, After All

One of the most important ideas in crypto so far is that increased adoption would drive prices higher. This idea is, no doubt, true. However, we should not confuse a long term trend with short term market currents, which are likely what has driven BTC back to near $8,000 USD.

In the short term, the BTC price is far more likely to be driven by liquidity concerns, and the over capital flows in the established financial markets. Unfortunately, marginal buying and selling is what drives prices on a day to day basis, and that might be a very bad thing for crypto bulls this year.

Crypto prices have enjoyed an amazing rally, just like stocks, risky currencies (looking your way OZ dollar), and high risk debt (whatever the FED isn't buying...yet). If these macro trends were to reverse, it would be fair to assert that cryptos are more likely to follow the markets lower, at least in the short term.