Over the past decade, the cryptocurrency market has moved from an experimental stage in blockchain technology to a permanent fixture in the global financial system. However, its dynamics are constantly shaped by changes in law, politics and the global economy. Understanding how these aspects affect the situation on the cryptocurrency market is key to consciously navigating this market.
I have prepared for you the second part of the summary of what the market may expect in the coming months, enriched with comments from experts from the largest companies in the industry.
What does the price of cryptocurrencies depend on?
The price of cryptocurrencies is highly volatile and can be shaped by a variety of factors:
Economy
The state of economies around the world has a direct impact on the cryptocurrency market. Economic growth, inflation and the monetary policy of major central banks such as the Fed influence investments and risk appetite, which directly translates into the value of digital assets.
Policy
Global tensions and conflicts, as well as changes in governments, can also impact cryptocurrency markets by changing risk perceptions. For example, geopolitical tensions can prompt investors to seek out safe haven assets, and cryptocurrencies, despite their volatility, are sometimes seen as an alternative to traditional safe havens like gold. Increasing political uncertainty in regions such as the Middle East and Latin America may prompt local populations to switch to cryptocurrencies to protect against local currency depreciation and capital controls.
Law
Changes in the law may have two main consequences for the cryptocurrency market: they may create a more predictable environment for investments or introduce restrictions that inhibit the development of the market. Examples include cryptocurrency exchange regulations, KYC (know your customer) and AML (anti-money laundering) requirements.
We are currently seeing increased regulation of the cryptocurrency market in various regions, which is impacting both the adoption and value of cryptocurrencies. In the UK and EU, the approach is balanced, while China still maintains strict regulations. And in the US, new laws, such as the Infrastructure Act, are being introduced that are shaping the local cryptocurrency landscape. The above-mentioned act introduces new requirements for reporting large cryptocurrency transactions, which is intended to increase transparency and financial security.
Recession, inflation, Fed decisions – what do cryptocurrencies say about it?
The impact of these economic factors on cryptocurrencies is complex. While a recession may cause a decline in confidence in traditional currencies and financial systems, leading to increased interest in cryptocurrencies as an alternative form of security, the Fed's decisions to raise interest rates may discourage investment in risky assets, including cryptocurrencies.
We asked Gracy Chen, Managing Director of Bitget, for her opinion:
Under the influence of the U.S. economy and the Federal Reserve's monetary policy, the world now finds itself in an overheating environment of rapid economic growth, with abundant but expensive credit resources. It causes high volatility in risk markets because there is a significant amount of money in them, driving the inflows and outflows of global capital markets.
The political situation in the world and digital assets
Global tensions and conflicts may prompt investors to look for a safe haven. Cryptocurrencies, due to their decentralization, may gain value as an alternative to traditional monetary systems, which may be susceptible to political and economic disruption. Additionally, sanctions may prompt countries and individuals to look for alternative methods of capital flow, which in turn may increase demand for cryptocurrencies as a tool to bypass the traditional financial system.
This year coincides with the US elections. According to previous election strategies, fiscal policy is expected to be more aggressive this year. The U.S. Treasury will continue to issue debt and allocate funds to electorally-friendly areas. Such an aggressive policy could raise the yield on 10-year Treasury bonds while increasing the volume and speed of funds flow in the market. Overall, this is relatively positive news for the cryptocurrency market, but caution should be exercised regarding operational risks in the process of improving cryptocurrency policy, such as SEC lawsuits.
– adds Gracy Chen.
Changes in cryptocurrency regulations – what consequences will they have?
Further regulation is expected to continue the trend towards greater transparency and protections for users. As a result, the market may become more stable and accessible to a wider group of investors. On the other hand, excessive regulation can limit innovation and market growth.
I asked Katarzyna Wabik, Binance's manager for Poland, about her forecast:
Companies like Binance have consistently advocated for regulatory transparency. Despite the potential for confusion over the details, the mere presence of an established framework that facilitates unimpeded access to one of the world's largest markets presents enormous opportunities.
Clear law ensures equal conditions for market participants. Regulatory clarity is also one of the main factors driving innovation and competitiveness around the world. A predictable environment is therefore necessary for investors and companies to develop. In particular, I would like to mention EU initiatives moving in this direction. With the introduction of MiCA, Europe is laying the groundwork to attract Web3 innovators from every corner of the world. By harnessing political will and making the right investments, Europe has the potential to become the epicenter of the industry.
The predictions of Jakub Martenko – Product Marketing Coordinator Ari10 are slightly less optimistic:
At first, the changes will have a negative impact on many projects that operate on the local market and are too small to meet the requirements. On the other hand, it opens up opportunities for companies that operate according to these principles. An example would be cryptocurrencies defined by the ISO 20022 standard, whose form of certification has confirmed many investors in choosing cryptocurrencies on this list.
The biggest challenges on the cryptocurrency market
The cryptocurrency market continues to face challenges such as price volatility, scalability issues, and cybersecurity concerns. These issues will need to be addressed as the market matures.
The focus should not be solely on 2024. There is a fundamental risk that threatens all participants
in the cryptocurrency market, you should always remember this. First, volatility is an important factor. Cryptocurrencies are characterized by large price fluctuations. This volatility acts as a double-edged sword – it carries the possibility of high profits, but also significant losses. Second, security concerns remain widespread. Cryptocurrencies depend on the complexity of the technology. Issues such as security vulnerabilities, complications in blockchain infrastructure, or significant advances in quantum computing could potentially pose further risks. Finally, it is worth paying attention to numerous scams. Unfortunately, the crypto space is full of Ponzi schemes, phishing and scam projects.
– comments Katarzyna Wabik.
The biggest risk may be related to the cryptocurrency market itself. With the approval of BTC ETFs and halving, there is a consensus of bullish sentiment towards cryptocurrencies. More users will engage in short-term contract speculation. If the consensus of market expectations becomes too strong, it may lead to the opposite effect – panic in the market.
– adds Jakub Martenka.
The situation on the cryptocurrency market in the near future – summary
To sum up, the cryptocurrency market in 2024 offers significant opportunities, but also poses numerous challenges for investors and users that require special vigilance and continuous education. The growing number of frauds and cyber threats makes it crucial to regularly stay informed about current criminal techniques, best security practices, and changing legal and political regulations affecting the cryptocurrency market.
Education and awareness are essential to preventing fraud and protecting your investments. Using reputable sources of information and subscribing to specialized newsletters, such as the Bitcoin.pl newsletter, can significantly increase the ability to identify and avoid potential threats, as well as appropriately respond to dynamically changing market conditions.
