- Cryptocurrencies have gone through a major crypto winter in the past two years.
- This crypto winter will translate to a crypto spring if the Fed starts lowering rates.
- The industry also needs more regulatory clarity.
Cryptocurrency prices like Bitcoin, Avalanche, Tron, and EOS have been in a prolonged winter in the past two years. Bitcoin was trading at $28,000 on Monday, down from its all-time high of $68,000.
Similarly, EOS price was trading at $0.566, 99% from its all-time high of $14.90. Tron and Avalanche’s AVAX crypto prices have all plunged by over 90%. Other coins and tokens like Mantle (MNT), Stacks (STX), and Trust Wallet Token (TWT) have also slipped from their all time high.
Low interest rates
This crypto winter will likely continue in the coming months unless two things happen. First, we need to see central banks, especially the Federal Reserve, shift their tone in the coming months.
The Fed has been highly hawkish in the past few months. It has pushed interest rates from an all-time low of zero to between 5.25% and 5.50%. The Fed has pointed to more rate hikes as its battle against inflation continues.
Higher rates have a major impact across all financial assets. The most immediate impact is that it makes short-term bond yields more attractive. For example, the 2-year Treasury yields jumped to more than 5%. Therefore, most investors have moved from risky assets to safe havens like money market funds (MMF).
Therefore, for the crypto winter to transform into a crypto spring, we need interest rates to move downwards. This will likely take time since the US inflation remains at an elevated level while the labor market is still tight.
Read more: How to buy EOS.
Regulatory clarity
Cryptocurrencies also need regulatory scrutiny to bounce back. The most urgent issue will be the approval of a spot Bitcoin ETF by the Securities and Exchange Commission (SEC). Companies like Franklin Templeton, Blackrock, and Invesco have applied for a spot ETF.
Similarly, VanEck and Ark have applied for a spot Ethereum ETF. Approvals of these ETFs will have a positive impact on cryptocurrency prices.
The other key regulatory concern to watch will be the lawsuits against Binance and Coinbase. The SEC has made several allegations, which could impact on the cryptocurrencies industry.
If the SEC wins, it could mean that these companies will need to delist thousands of crypto tokens. The SEC has alleged that these tokens are financial securities, which should have key disclosures.
Therefore, the next crypto spring will need more clarity on these issues. Sadly, the lawsuits against Binance and Coinbase could take a few years to complete. The SEC vs Ripple case took almost three years. This will be a big cloud hanging in the industry.
Read more: How to buy Avalanche.
