Inflation And Eroding Trust In Fiat Currencies Are Among The Key Reasons For The Expected Climb

The world of cryptocurrencies managed to lock in a market capitalization of around $2 trillion, primarily due to the exponential price increase of its two main pillars – Bitcoin and Ethereum. For instance, the world’s leading cryptocurrency, Bitcoin, started 2010 with just $0.05 per BTC, and now sits just above $41,000, reaching its peak price point of $68,789.63 on November 10, 2021.

Ethereum also made its marvelous price journey starting its life at around $0.42 in October 2015 and climbing all the way to $4,891.70 six years later.

According to data, Bitcoin’s inception and massive price increase gave birth to upwards of 16,540 additional crypto projects. Some projects like Dogecoin and Shiba Inu showed just how rapidly and dramatically a token price might change, driven by community pressure.

Nevertheless, the two market leaders, holding almost 60% of the market cap share, headed into 2022 with some big gains. Bitcoin, for instance, increased its price by 57.81% in 2021, while Ethereum’s price skyrocketed almost four times since the start of 2021.

However, the still volatile nature of cryptocurrencies managed to put the crypto leaders on a rollercoaster ride in terms of price performance. For instance, Bitcoin futures contracts have hit a low of $28,440 and a closing price of $47,175 on December 31, which is below 2021’s mid-point.

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Ethereum, on the other hand, managed to lock in a futures range of $716.919 to $4,865.426. Sitting at $3,688.877 on Dec. 31, the price was well above the year’s midpoint.

The bullish trend for the two dominant players in the crypto sector ended on November 10, and bears took control of the market, pushing both cryptos’ prices below the levels of 2021 closing.

The clouds above the crypto sector may disappear, however, as global macroeconomic factors may pour in fresh capital inflow into the leading cryptocurrencies. The primary reason, according to experts, is the rising inflation, which pushed the U.S. Federal Reserve to announce interest rate hikes, scheduled for 2022 - 0.90% in 2022 and 1.60% in 2023 in order to combat inflation.

The inflationary status of the U.S. economy means more and more investors would seek a hedge against it, and cryptocurrencies are becoming a number-one preference, next to gold and other precious metals. Furthermore, cryptos are being more and more into consideration as an alternative to fiat currencies, since inflation erodes fiat currencies’ purchasing power.

The eroding trust in fiat currencies came in full effect amid the COVID-19 pandemic and the stimulus checks, which caused a liquidity wave. Indeed, some of the benchmark indices, like the U.S dollar Index, have been moving higher, in relation to the euro, yen, pound, and a handful of fiat reserve currencies, which indicates lesser purchasing power.

The third reason why cryptos may experience another bullish wave is the fact that businesses and governmental bodies around the globe are accepting cryptocurrencies as a means of exchange each day. While switching to crypto payments is less of an ordeal for businesses, countries like El Salvador proved that entire nations could use Bitcoin as a legal tender. Furthermore, as the faith in governments and traditional banking institutions declines, cryptocurrencies streamline cross-border remittance and general usage.

However, the popularity increase comes with its own set of precautions. For instance, the term “systemic risks” describes the fear of national banks of having no control over monetary supply. But, when compared to a company like Apple, for example, the risk is low since Apple’s market cap crossed $3 trillion, while the entire crypto market capitalization remains under $2 trillion.

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