Crypto Market Faces Major Plunge, But Recovery May Be on the Horizon
Market Overview
The cryptocurrency market experienced a significant downturn recently, with Bitcoin (BTC) witnessing a 3.2% drop in just 24 hours. This downturn has not only affected Bitcoin but has also resulted in substantial declines for other major cryptocurrencies such as Ethereum (ETH), which fell by 9%, and Solana (SOL), which dropped by 10%. Collectively, this sell-off triggered about $1.15 billion in liquidations across crypto futures markets.
Expert Insights on Potential Recovery
Despite the recent plummet, Han Xu, a partner at HashKey Capital, is optimistic about the future of the crypto market. He posits that the end of quantitative tightening (QT) combined with an increase in the M2 money supply could pave the way for a market recovery. In an exclusive interview with FXStreet, Han suggested that the crypto bull market could be entering a "new mid-phase" characterized by significant upside potential.
Han explained the current economic climate and the implications of adjusting monetary policies. He noted that the anticipated conclusion of QT later this year may signal a shift in global liquidity conditions which could invigorate investor sentiment toward cryptocurrencies.
Understanding Quantitative Tightening and M2 Supply
Quantitative tightening involves the Federal Reserve (Fed) reducing the money supply by decreasing its balance sheet through bond sales, which typically results in higher interest rates. In contrast, the M2 money supply, which includes cash, checking deposits, and easily convertible near money, is a crucial indicator of liquidity in the economy. Han remarked, "Once QT ends — expected in the first half of 2025 — we anticipate a meaningful drop in real yields, which historically correlates with risk-on behavior in both traditional and digital asset markets."
Han highlighted that cryptocurrencies show a higher sensitivity to changes in global liquidity compared to other asset classes, such as equities or commodities.
The Future of Bitcoin and Institutional Adoption
Bitcoin, which has a capped supply of 21 million coins, continues to garner interest as a potential hedge against inflation. Analysts like Han attribute Bitcoin’s rise in value to its growing status as "digital gold," enhanced by increasing institutional adoption and greater acceptance in corporate treasuries. He pointed out that Bitcoin allocations in corporate treasuries have surged, now amounting to approximately $85.2 billion.
Han Xu articulated that the ambitious target of $1 million per Bitcoin, while seemingly extreme, is grounded in economic principles, particularly as Bitcoin becomes harder to acquire moving forward given its limited supply.
Looking Ahead
The immediate future for Bitcoin shows the cryptocurrency trading at around $104,400, presently down 3% over the last 24 hours. However, Han projects that if Bitcoin’s market cap were to reach parity with that of tradable gold — estimated at approximately $5.6 trillion — the price of BTC could feasibly attain $1 million by 2035, contingent on macroeconomic stability and inflation trends.
In conclusion, while the current state of the crypto market is marked by uncertainty and declines, experts like Han Xu believe that macroeconomic shifts could spell a recovery. Investors and market participants are urged to keep a close eye on these developments as they could significantly influence the trajectory of cryptocurrencies moving forward.
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