Following last week’s deadly lows, the cryptocurrency market seems to be establishing a new normal. Bitcoin yesterday brought in gasps of panic, as it fell to a new low of beneath $18,600, which was a price level it did not touch since late 2020. However, as the day progressed, the cryptocurrency now stands to have gained 4.4%. Economists, however, warn that the strengthening US dollar could see similar lows being traversed in the following days and weeks, which incentivizes people to sell crypto-assets and hold hard cash, as a store of value.

Highlights of the week

• The Ethereum merger and shift to clean energy, the proof-of-stake concept continues to remain the biggest cryptocurrency news of the week. The shift saw much discussion surrounding it, in terms of the consequences it would have on Bitcoin’s position as market king. BTC has already been falling to new lows, and its substantial carbon footprint will now add to the reasons why market participants will hesitate to rally towards it. Its power-hungry proof of work model makes it highly unsustainable in comparison.
• The Brazilian tax authority has revealed that monthly bank statements and filing reports have pointed to a record number of cryptocurrency transactions and declarations. In the month of August alone, over one million Brazilian citizens have declared crypto-holdings of various currencies and assets. The number of female crypto-owners has also been rising steadily, and now makes up a fifth of total holders.
• Senior IMF executives have published a report earlier last week calling for a globally coordinated effort on establishing a regulatory framework to help govern cryptocurrencies and digital assets. The report emphasizes the need to protect users, maintain market order, as well as encourage innovation in the long-term future.
• The head of JP Morgan and Chase’s Digital Assets Division, Umar Farooq, has stated that most crypto-assets in the market are still “junk” and are yet to present real utility cases to demonstrate their underlying value. He also laid out how this complicates regulating this dynamically evolving market in the long run.
• Last week’s financial crimes and cryptocurrencies conference at the Hague, hosted by Europol saw a general consensus among financial investigators and crypto-coin specialists. Almost all stated that blockchain networks are critical to tracking down illicit funds and tackling modern forms of crime.

Crypto fear & greed index

When tackling a domain as subjective and complex as sentiment, the best bet to turn to is that of the crypto fear and greed index. This places a value between 0 and 100, indicating where the market stands between fear and greed, with respect to cryptocurrencies and the wider blockchain domain.

At present, this figure stands at 20, which was the same as we indicated in last week’s article, suggesting that little has improved in the market. This extreme fear zone is understandable, given that the crypto-king, BTC, fell to a deadly low of beneath $18,600 yesterday, a point it had previously seen back in December 2020. The dip seemingly drops the cryptocurrency’s resistance point lower than before and highlights a shift in the crypto-investors psyche.

One crucial aspect that may be contributing to such fearful sentiment is likely the strengthening US dollar amidst wider macroeconomic uncertainty. The result of this is more people hesitating to undertake risky investments, and sticking to the US dollar as an ideal store of value. Moreover, indications by the US Federal Reserve of further interest rate hikes will likely further disincentivize crypto-holdings, and thus may further trigger a downward spiral across the wider market.