The crypto market is trading in the green with Bitcoin and Ethereum breaking through critical resistance levels. The first and second cryptocurrencies by market capitalization are posting a profit of 10% and 15% in the last day and look set to generate more profits in today’s trading session.
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In order to get more clarity in terms of direction, Bitcoin needs to close the daily candle above $23,000 and Ethereum above $1,700. Data from Material Indicators registers an order book of things on the sell side if the price of BTC can break above its current levels with high odds of reaching $28,000 in the near term.
If this rally can get past $25,000, then $28,000 is concentrating very quickly. If you go long, remember to take profits along the way.
When the bear wakes up from hibernation, it will be hungry. pic.twitter.com/YGe4Swu3wT
— Material Indicators (@MI_Algos) July 28, 2022
Longer term, macroeconomic conditions will remain an obstacle to any sustained recovery. In this sense, Tobian Adrian, Director of Money Market and Capital of the International Monetary Fund (IMF), predicted more losses in the nascent asset class.
In an interview with Yahoo Finance, Adrian talked about the risk to the crypto market and risky assets, like stocks. For digital assets, Adrian thinks a collapse of a stablecoin could fuel another leg down. The IMF official said:
There could be further failures of some of the coin offerings – in particular, some of the hardest hit algorithmic stablecoins, and there are others that could fail.
The IMF official referred to the collapse of the Terra (LUNA) ecosystem. This event led to the downfall of Three Arrows Capital, Celsius, and other companies in the crypto industry. Thus, contributing to the price crash of Bitcoin and other cryptocurrencies.
Adrian says digital assets could face another similar event, but doesn’t mention any specific Terra-sized project that could trigger it. The IMF official thinks stablecoins could add to the selling pressure in the fledgling industry due to alleged vulnerabilities in its collateral:
There is a certain vulnerability there, because they are not supported one on one. [Some fiat-backed stablecoins] are backed by somewhat risky assets… it is certainly a vulnerability that some of the stablecoins are not fully backed by cash type assets.
Will the crypto market crash if there is a recession like the one in 2008?
In addition to the alleged risk of stablecoins, the IMF official discussed the potential risk of economic recession. The United States recently announced its second consecutive quarter with negative GDP, which should technically mean an economic recession.
However, Adrian ruled out that the global market would experience anything like 2008. At that time, the financial sector was exposed to “shadow banking”, the hidden assets of collapsing bank balance sheets worsening the economic crisis.
Cryptocurrencies could face a bigger hurdle from international regulators. The IMF official said these entities should apply securities laws to the 40,000 he claims to comprise in the sector. He added:
Regulating the coins themselves is going to be difficult, but regulating entry points such as exchanges and wallet providers to invest in these coins is something very concrete and very doable.
The United States Securities and Exchange Commission (SEC) appears to follow this approach. The Commission has engaged in legal battles with major players in the industry, including payment solutions company Ripple and crypto exchange Coinbase.
SEC Chairman Gary Gensler has already stated that he is willing to acknowledge that only Bitcoin is outside their jurisdiction. If the Commission becomes more aggressive, the crypto market could suffer as crypto projects scramble to meet regulatory requirements.
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This is probably one of the biggest hurdles for the fledgling asset class in the coming months with macro conditions. In that sense, the IMF official might be on point, but cryptocurrencies have faced regulatory hostilities since their inception.