Why Is the Crypto Market Rising Today?

After a robust start of the year 2023 ,the cryptocurrency market is now witnessing a neutral and dull momentum on the back of gloomy global macroeconomic headwinds and worrisome inflation data. The global crypto market capitalization is trading at $1.11 trillion, dipped down due to low trading volumes.

The poster boys of the crypto market – Bitcoin and Ethereum – which showed incredible stability at the start of the year 2023, have been trading in red in the month of May. Experts are anticipating the rally to resume in the later half of this year due to more clarity on the macroeconomic conditions worldwide and especially in the key markets of the U.S. and the UK.

Let’s have a look at the top reasons which have turned the crypto market bullish in 2023 and what should be the approach of investors in this unexpected crypto rally.

Crypto Markets On A Road to Recovery

Overall, the broader sentiment of the crypto market has shifted from “positive” to “neutral”. The world’s largest cryptocurrency, Bitcoin which recently touched its high, is now hovering around at the much lower levels of $26,500 after touching its high at $30,000 on April 11,2023.

On the other hand, the world’s second largest crypto, Ethereum, is also trading at $1,800 levels, which marked its highest peak since August 2022 after touching the levels of $2,100 in April mid 2023. This rally was witnessed immediately after the successful launch of its hard fork “Shapella”, which can transform the landscape of Ethereum and its applications. Currently, Ethereum is trading almost 2% down and forming a strong resistance at $1,800 levels.

Even the performance of the major cryptocurrencies have fallen down as potential investors seek more clarity on the U.S. debt ceiling issue which has weighed down the cryptocurrency market.

Performance of the Most Popular Cryptocurrencies

(As on May 26, 2023)

Digital Asset Market Capitalization

Bitcoin $513 billion

Ethereum $218 billion

Tether $83 billion

BNB $47.7 billion

USD Coin $29 billion

XRP $24 billion

(Source: coinmarketcap.com)

However, experts believe that the uncertainty around the US debt ceiling talks and the U.S. Fed minutes are temporary, and the stress level in the crypto market will vanish as the market gets better and stable news.

What Lies Ahead For Crypto Market?

The cryptomarket has been weighed down heavily due to the widespread concerns over the debt ceiling in the U.S and the hawkish tone of the Fed minutes. Overall, the global financial markets took a major hit as the debt ceiling deadline approaches with no resolution in sight. The not so good inflation data from the UK has also added fuel to the fire and hit the sentiment of the overall crypto market.

The global crypto market capitalization dipped down to $ 1.11 trillion, with a total crypto market volume that has clocked over $27.91 billion, over the last 24 hours.

Last month, the cryptocurrency market has recorded some positive signs due to ease in macroeconomic activities which has led the crypto price to rally. The reasons were majorly due the Federal Reserve’s approach towards interest rates to avoid recession or rising trust towards decentralized finance after the banking fiasco in the U.S, the cryptocurrency market got immense support from such factors and boasted a positive outlook for the rest of the year.

There are also high hopes on the return of the monetary policy which might include Bitcoin and other virtual assets, and may change the minds of those regulators who have otherwise appeared hell-bent on suppressing digital assets.

Adding to this, there is also a fundamental reason for this recent crypto mini-bull rally. Bank contagion has resulted in heavy losses on various bong holdings, which has forced the Federal Reserve to go slow on rate hikes so as to combat severe liquidity issues.

Higher rates have always weighed heavily on risky assets such as cryptocurrencies, as demand for such assets dampens when rates rise.

The past year 2022 has been brutal for cryptocurrencies. Due to massive global uncertainties and FTX fallout, the markets were hit worse than ever before. But now, Bitcoin and the other currencies are in a much better and pleasant situation.

Let’s have a look at the figures of market capitalization over the last year, from November 2021 to April 2023:

Crypto Market Capitalization

Year Market Cap

November 10, 2021 $3 trillion- All-time high

November 21, 2022 $727.58 billion

February 3, 2023 $1.09 trillion

March 31, 2023 $1.17 trillion

Apr 27, 2023 1.20 trillion

May 26, 2023 $1.11 trillion

Source: CoinMarketCap

What Should Indian Investors Do In Crypto Rally?

The upside momentum in cryptocurrencies might be able to bring back not just the retail investors but also the high net-worth individuals, institutional investors, and corporates to seize some of the wild short-term trading gains.

While there is a rally in the crypto markets, it is important to follow the simple rules and strategies to invest sensibly, such as:

Diversify your portfolio and invest in a mix of investments.

Spread your risk to lessen the impact of a potential downturn in any specific crypto.

Do you research (DYOR) and keep yourself updated with industry developments.

Do not make impulsive decisions and get caught up in the hype.

Follow a disciplined investment pattern.

Lastly, security should be a top priority for investors, so, store your crypto assets in secure wallets with proper

backups and security measures in place.

Experts observe that crypto investors should continue taking a cautious approach as any new development in this space can lead to extreme situations.

According to the research team of one of the largest Indian crypto exchanges, CoinDCX, “This time the narrative is different as it’s more macro-driven, projects development-driven, and such momentum can be treated as a mid-bear market rally. So, investors in such a narrative should keep limited exposure to the small cap token and deploy the majority to projects that are fundamentally strong and getting developed day by day.”

Raj Karkara, COO, Zebpay, advocates for an education-first approach as it is important to regularly monitor the crypto market and stay up-to-date with news and technical analysis.

“It is imperative that investors fully understand the fundamentals of a crypto token before investing. There are several investment strategies one can use during a rally, so that one can invest sensibly.” said Karkara.

The CEO and founder of Taxnodes, Avinash Shekhar, advises Indian investors to not go just by word of mouth or popular narratives, rather spend time understanding the fundamentals of the crypto space.

“Investors should start with small amounts and gradually increase their exposure by making informed investment decisions rather than wagering on speculations. As an asset class, cryptocurrencies are volatile, at present. However, backed by innovation and conducive regulations, the true potential of the Web3 space will begin to materialize and cryptocurrencies as an asset class will mature”, said Shekhar.

Undoubtedly, the crypto markets appear to be recovering from the recent crash but the sentiment of “fear” continues in the crypto community. Experts strongly feel that sentiment is still mixed for the Indian crypto industry as they were too hopeful to get some respite in tax rate from the government, but the Union Budget 2023 announced on February 1, 2023, skipped any new mentions on tax relief to the sector.

In India, there is still ambiguity on high taxes and on the regulatory framework, however, with the ease of macroeconomic conditions worldwide, the trade volumes on Indian exchanges are expected to rise from rock-bottom prices. Investors have been advised to continue to trade cautiously and vigilantly, as one never knows whether the crypto rally is here to stay or not.