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The cryptocurrency market has had a difficult start to the year, following the end of a strong 2021, where Bitcoin peaked at an all-time high in November. The broad market has struggled to maintain any sort of position of strength, seeing volatility and overall decline. While some experts predict the retracing figures are the beginning of the next bear cycle, other analysts suggest that the pressure might be temporary and that the pull-back will come to a conclusion soon.
According to CIO at Bitwise Asset Management Matt Hougan, the second half of 2022 is poised to bring in a strong positive trajectory to the market. Hougan suggests that there are three factors pulling the crypto down, noting that these are set to resolve sooner.
The shift to a risk-off market
One of the key factors bringing the value of the cryptocurrency market down, according to Hougan, is that there has been a recent shift to a risk-off market where investors are cautious of investing in riskier alternative assets. This has been felt across the tech industry in general, with tech stocks suffering and struggling to refind stability, similar to the cryptocurrency market, but at a less aggressive slide.
“The current pullback is being driven by three things, which are going to resolve. One, of course, is the broad market shift to a risk-off market. That’s pushing through all sorts of risk assets, of which crypto is one. I think we’re most of the way there to adjusting to this new reality.”
The US political landscape
United States President Joe Biden is expected to be issuing an executive order soon. In this order, agencies across the state will be directed to research and study cryptocurrency potentials and pitfalls and explore a central bank digital currency (CBDC) as well as come up with mandates that will be able to regulate digital assets. Once the order has been placed and more details are provided, the market will be able to pick a direction based on what sort of regulation it will face.
A major sell-off as a result of the tax season
Over the past few months, as the financial year comes to a close, there has been tax-related selling. Tax-payers have been selling their digital assets to settle their tax.
As Hougan notes, there have been short-term hurdles in the market, but the underlying trends should point to a more bullish end to the year. Without putting a price prediction, Hougan believes that the market will rebound and hit higher values later this year.
“I look at the underlying trends, I’m extremely bullish about where we end up by the end of this year… I think we are going to go substantially higher. I wouldn’t be surprised to see us challenge and even surpass the previous all-times highs, as long as things break along positive lines.”
Looking ahead to the crypto market in 2022
There are certain factors, Hougan pointed out, that might drive prices in 2022 in a new way. These include an approved Bitcoin ETF in the market as well as substantial market regulation. As broader adoption expands across the industry, Hougan predicts that the market will experience continued positive trends as more institutions and large-scale investors look to alternative digital assets.
Further, if the relationship between the tech industry and Bitcoin and other cryptocurrencies continues to align, the trust in the crypto market might increase as both an off-risk asset and a safe haven against the fiat market:
“The thing about crypto, which investors are learning, is that crypto-assets are driven by two factors. One, they are risk assets. So when you have a risk-off trend in the market, they can fall out of favor from a short-term perspective. There’s also the crypto-specific drivers, right? Those sort of fundamental characteristics, which I spoke about earlier — institutional adoption, positive regulatory developments, technological advances.”