Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

3 Reasons A Rally In Bitcoin And Ethereum Will Happen Sooner Rather Than Later

Published 01/10/2022, 06:35 AM
Updated 07/09/2023, 06:31 AM

This article was written exclusively for Investing.com

  • 2021 was another bullish year for Bitcoin; Ethereum did even better
  • Ugly start in 2022
  • Reason 1: Rising Inflation
  • Reason 2: Eroding trust in fiat currencies
  • Reason 3: Growing acceptance of the crypto class

Nothing fuels a bull market like incredible performance accompanied by tales of unimaginable wealth creation for early investors. In my lifetime, I had never seen an asset deliver profits like Bitcoin has for those who got in at the beginning and held on.

The cryptocurrency rose from five cents in 2010 to nearly $70,000 per token in 2021. The percentage gain is massive and its magnetic force has been powerful.

Bitcoin’s success gave birth to Ethereum, which also delivered incredible wealth to early investors. As of Jan. 9, over 16,540 additional cryptocurrencies have come to the market in an effort to capture the clamorous demand from stampeding investors looking to discover the next token to deliver Bitcoin-like returns.

As we head into 2022, Bitcoin and Ethereum are coming off a year that increased wealth for investors who have held the tokens. Three things could push Bitcoin, Ethereum, and a host of other cryptocurrencies to even higher highs over the coming year.

However, risk is always a function of potential rewards, and the road to riches is likely to hit more than a few roadblocks in 2022 and beyond. Expect lots of volatility in the crypto asset class, and only invest capital you can afford to lose.

2021 was another bullish year for Bitcoin; Ethereum did even better

Bitcoin moved 57.81% higher in 2021, while Ethereum surged +391.75%. On Nov. 10, both leading cryptocurrencies moved to new all-time highs when they put in bearish key reversal patterns on the daily chart and corrected.

Volatility is nothing new for the cryptos. They have routinely experienced head-spinning moves on the up and downside. Bitcoin Futures Monthly

Source: CQG

The chart above illustrates that nearby Bitcoin futures traded from a low of $28,440 to a high of $69,355 in 2021. The Dec. 31 closing price of $47,175 was below the year’s midpoint.

Ethereum Monthly

Source: Barchart

Ethereum’s range in 2021 was from $716.919 to $4,865.426. At $3,688.877 on Dec. 31, the price was well above the year’s midpoint.

But on Jan. 9, 2022, since the Nov. 10 highs, the trend has been bearish, and the selling continues in early 2022 with Bitcoin and Ethereum falling to prices below where the digital currencies finished at the end of 2021.

Ugly start in 2022

January Bitcoin futures settled at the $46,275 level on Dec. 31, and the selling continued over the first week in 2022. Bitcoin Futures Daily

Source: CQG

The chart shows nearby Bitcoin futures were below $41,800 per token on Sunday, Jan. 9, an over 9.7% decline so far in 2022. Ether Futures Daily

Source: CQG

January Ethereum futures closed 2021 at the $3,685 level. At $3,198 on Jan. 9, they were 13.2% lower, underperforming Bitcoin, and substantially lower after the first week of the new year.

Bitcoin and Ethereum were already trending lower when the Fed released its December FOMC meeting minutes on Jan. 5. As inflation barometers, the cryptos declined to new lows in the wake of the minutes that pointed to a more hawkish approach to monetary policy over the coming months.

Meanwhile, three factors suggest that Bitcoin, Ethereum, and other cryptos will find bottoms and resume their ascent in 2022.

Reason 1: Rising Inflation

While the Fed is talking tough, action speaks louder than words. In December, the FOMC forecast that the Fed Funds rate would rise to 0.90% in 2022 and 1.60% in 2023. Even if inflation recedes, real rates will remain in negative territory in 2022, which is inflationary.

If the cryptos are inflation barometers, they are likely to move to the upside and attract new buying in an environment where inflation remains a clear and present danger and is rising. Inflation erodes fiat currencies’ purchasing power. Cryptos are an alternative as values are determined by buyers and sellers, with no government interference.

Reason 2: Eroding trust in fiat currencies

Fiat currencies derive their values from the full faith and credit of the governments that issue legal tender. The liquidity tsunami and stimulus tidal wave since early 2020 eroded faith and credit in governments.

Trust is critical for currency values. While the Dollar Index has been moving higher, it only reflects the US currency’s value against the euro, yen, pound, and a handful of fiat reserve currencies. Measuring currencies against markets across all asset classes reveals that trust has eroded along with fiat currency values.

Reason 3: Growing acceptance of the crypto class

More businesses are accepting cryptocurrencies as a means of exchange each day. Cryptos reflect the evolution of the fintech revolution, where technology has finally addressed payments and finance. As the faith in governments and traditional banking institutions declines, cryptos offer an alternative for consumers.

Square, a payments company that changed its name to Block (NYSE:SQ) in late 2021 is headed by Jack Dorsey, who also founded the company as well as another business, Twitter (NYSE:TWTR). He left Twitter last year in order to concentrate on cryptocurrency initiatives in 2022.

In 2021, Mr. Dorsey once said that Bitcoin and cryptos will “unite the world.”

Meanwhile, more portfolios hold crypto investments as they have become more mainstream investment vehicles. The rise of portfolio allocation brings new buying to the asset class each day.

But risks remain

The leading risk is government regulation. As the asset class grows, we will hear a lot about “systemic risks” created by cryptocurrencies. However, the primary concern for governments is likely to be controlling the money supply, which translates to power.

With Apple's (NASDAQ:AAPL) market cap rising above the $3 trillion level for the first time in early 2022, the $1.956 trillion cryptocurrency market cap on Jan. 9 is not yet an issue that would create any significant “systemic risks.”

Still, the market cap for the digital currency asset class grew by 182.18% in 2021 to the $2.166 trillion level. A similar move in 2022 would put the value of the entire asset class at nearly $4 trillion, which would set off alarm bells with regulators and government officials.

Ethereum should continue to lead Bitcoin as it is faster, more efficient, and Ethereum 2.0 is less energy intensive in a world addressing climate change. It operates under a proof of stake instead of a proof of work protocol which adds to its efficiency versus its larger cap 'cousin."

Nevertheless, I expect Bitcoin and Ethereum to establish higher lows over the coming weeks and months before resuming the ascent that has created untold wealth for a growing number of believers in the burgeoning crypto asset class.

Latest comments

Crypto is no kind of market hedge it goes down worse then the market does everytime
16,500 new cryptos lol people are ridiculous
You sure understand cryptoverse trends and times....2022 will be EPIC for BTC...high-scale adoption, inflation hikes, interest rates unsustainability, FIAT unpopularity, institutional BTC ownership/investment, rise in BTC buybacks from countries and more would be some contributory factors double...BTC no longer waits for 4 year halving intervals to make new ATH....BTC followed by hundreds of other crypto assets will hit double ATHs in "22
It will crash. Don’t be fooled
You know ether is worthless right. High gas fees. Slow transactions . Avax and solona are way more advance and cheaper fees. Eth is a nintendo 64 solona ps5 avax xbox . Use the networks and you would know.
Or people see margin calls coming in and it will crash. You also declared Doge and SHIB as 'top dogs' among crypto
Have you ever heard of head and shoulders or double top? I guess no.
Helps that the stock market staged a major comeback as we move into the close.
Good article. Good call. Wikipedia shows bitcoin began at 3-10ths of 1-cent around 2009. 100 bitcoins for 30-cents sounds like a good deal, now. Looks like the bottom is finally in this morning at 39,697. More than likely, it had to penetrate 40,000 one-time, as in September 2021, before reversing back up. The bull market continues.
why still raise rates if there is no trust in in the dollar?
When the Fed raises rates, the US Dollar will move up like a rocket.
One raison why a rally in Bitcoin and Ethereum won't happen :  They are both worthless , they haven't any intrinsic value !!  Gold is a globally accepted Inflation hedge ! Crypto's will never be a hedge against inflation ! The ponzi scheme is falling apart ...... 30 k coming !
I won't jump to that conclusion. The reason is that the market is and will continue to be heavily manipulated due to lack of regulation. the big whales 🐋 collude to create fake liquidity and keep pumping. they just need a sufficient number of people to buy the story
I'll stick with gold since I can still trade it if the internet gets unplugged
Norhing more than tulips in fashion. Greed and prospect fir quick profits. Luke gamestop or DWAC.
27 nambar bags
Reason 1: you are lte to the game. Inflauton is at its peak and while it might go slightly higher, its more likey to peak and deop from here.Reason 2: bery long shot theory. Dollar is appreciating in market turbulence so dollar is still the last safe haven. Until we see bitcoin rise in a market turbulence and dollar decline, this reason belongs in theiry than practiceReason 3: acceptance is marginal for now and only because its widely traded and makes for good marketing for milenial customers and GenZs to say you accept some crypto for purchases.Better reasons to consider: the economic cycle is ending we are in the final innings of this business cycle. Speculation is strongest in the recovery phase of a business cycle, not in the mid cycle or late cycle. So until the next recovery, put your bitcoin in a wallet or better yet convert it to dollars
One more bitcoin trader on the red trying to get everyone to buy. Also the author describes the poorest argument associating bitcoin with inflation.
Author has been pumping crypto for the better part of 18 months. Now it seems he needs people to buy so he could sell.
the article doesn't add any valuable information and just keeps repeating what happened over the past 10 years. kryptos will be an amazing alternative for payments processing but they can never and won't be allowed be replace for fiat currency. no one seems to talk about the fact that Bitcoin itself is incapable of providing credit growth, which is why unlimited supply is a good thing.
Is there a future for Cryptocurrency and Blockchain? YES. Does that mean Bitcoin = the future? NO. Am I willing to buy a Bitcoin for $42,000? NO. Bitcoin could be worth 95% less tomorrow with one swipe of the Fed pen. Ethereum has more potential value to society/industry but like a lot of speculative stocks, it is way overvalued on risk/reward scales.
Bitcoins and Eth have no practical applications since the transation rate on their networks is too low. They are perceived as being digital assets (like gold) with a store of value; but an infinite amount of other, potentially better, digital assets can be created, whereas you cannot create other metals on the periodic table of the elements.
 Yes but with Eth at least it can be used as the building block for other digital assets and blockchain purposes etc. Bitcoin on the other hand has 0 value apart from what someone is willing to pay someone else for it.
Buying air has value? I think not, and neither dose bitcoin
Neither dose your comment.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.