Crypto market flows into positive territory, but the question is, how long will it last?

Bitcoin, the big-shot cryptocurrency, had a wild ride in 2021 and 2022.

Crypto market flows into positive territory, but the question is, how long will it last?
Souvenir tokens representing cryptocurrency bitcoin plunged into water in this illustration taken May 17, 2022. REUTERS/Dado Ruvic/File Photo

The backstory: Bitcoin, the big-shot cryptocurrency, had a wild ride in 2021 and 2022. Specifically, the coin hit an all-time high in November 2021, soaring past US$68,000, but then came crashing down in 2022, dropping below US$20,000, causing some major stress in the market. Other crypto players like Terraform, Voyager Digital, Celsius, FTX, BlockFi, Genesis Global and others also crumbled, leading to what many called a "crypto winter."

More recently: But, in a turn of events, the crypto market is now seeing inflows thanks to Silicon Valley Bank's collapse, causing some to turn to bitcoin as a safety net in case the traditional economy gets messy. Last week, CoinShares reported that crypto investment products got a massive US$57 million in inflows in the first week of March (low volume, though), with bitcoin snagging most of that cash.

Meanwhile, Ethereum just finished a major upgrade that could attract billions of dollars into ether. And even though the SEC Chair has commented about ether regulations, traders don't seem too fazed as the coin's price soared past US$2,000 for the first time since August.

The development: Now, bitcoin is on the rise again. In just one month, it's surged from US$20,000 to US$30,000, hitting a 10-month high last week. What's helping drive this rally, you ask? Well, investors are betting that the Fed will soon ease its aggressive monetary policy stance.

The crypto industry is still reckoning with a lot of instability and change.

For example, bigwigs like FTX's Sam Bankman-Fried and Binance's Changpeng Zhao are dealing with a heap of legal issues. But, recent research by Citigroup predicted that up to US$5 trillion could shift to new forms of money like digital currencies by 2030, with another US$5 trillion in traditional assets possibly being tokenized, bringing blockchain much more into the mainstream.

Key comments:

"The sentiment here doesn't seem like the last few weeks mean that we can pretend that the last 10 months never happened," said Oliver Linch, CEO of the trading platform Bittrex Global, speaking from the sidelines of a Paris crypto conference. "But there is certainly a feeling that maybe this signals that a line can be drawn under those scandals, and we can get back to assessing – and valuing – crypto without all the noise from the rumors and wrongdoing."

"The recent surge in bitcoin's price is like a breath of fresh air after a long, cold crypto winter," said Tim Frost, CEO of crypto yield platform Yield App. "This renewed optimism could be attributed to an anticipated shift in the US Federal Reserve's monetary policy, which is expected to create a more stable, and hopefully predictable, environment."

"I don't think there's the mania or gusto we saw at $30k or $40k, but there is still, behind the scenes, quiet progress," said Simon Taylor, head of strategy at Sardine, a fraud prevention startup that deals with fintech and crypto companies as clients.

"Institutions started to take Bitcoin seriously after Bitcoin broke $20,000 in 2020 and played a key role in the subsequent rally to $69,000," wrote Michael Purves, CEO of Tallbacken Capital Advisors, in a recent note to clients. "However, this time around, its longer-term history of not providing portfolio diversification will weigh heavily on institutions, which probably have bigger headaches to worry about."