After dropping nearly 15% in April, bitcoin rallied back above $70,000 in early June. This leaves us with new questions going forward. Can it continue making new highs? Will the new spot ether ETPs be a catalyst?
Here are 5 areas that could influence crypto prices in the second half of the year.
Can bitcoin recover its upward momentum?
"The on-chain indicators (data from the blockchain) Fidelity Digital AssetsSM looks at appear to indicate we are clearly in a bull market, but have not yet entered the more euphoric stage, suggesting there could be more upside," says Fidelity Digital AssetsSM Research Director Chris Kuiper.
"Euphoric stage" refers to periods when the price of an asset rises significantly beyond prior all-time highs. Of course, while bitcoin has entered this stage in each of its previous market cycles, investors should remember that there's no guarantee it will do so this time around. Moreover, even those who are optimistic should be prepared for the possibility of regular drawdowns, which are common even in a bull market.
"One other interesting thing to note is that the volatility of bitcoin had been declining to some of the lowest levels on record, but is now starting to pick back up," says Kuiper. "This is also consistent with past cycles, and if the past is any indication, we should expect an increase in volatility in the months ahead."
Could institutional interest in bitcoin pick up?
After a strong March, April saw a decline in institutional interest in the spot bitcoin ETP. This slowdown contributed to bitcoin's slumping price. However, as of early June, interest seems to be returning.
"While anything can happen in the short term, I personally think the underrated trend here is a slow burn of consistent demand for these products in the long term," says Kuiper. "These products are still being scrutinized, going through compliance and due diligence processes by many firms, and are currently still not available on all platforms or aren't allowed to be actively solicited. This will likely change, in my opinion, but will take time."
How might the spot ether ETPs impact ether's price?
In May, the surprise approval of a rule change that allows spot ether ETPs brought a new wave of optimism to the crypto markets. When spot bitcoin ETPs launched earlier this year, they brought a significant amount of institutional money into bitcoin that helped drive prices higher. Ether supporters hope the ether ETPs will do the same.
Fidelity Digital Assets Analyst Max Wadington, however, sees reasons to be cautious. "The ether ETPs are undoubtedly bullish for ether's price, as they increase ether's reach to more investors," says Wadington. However, Wadington also cautions that it remains to be seen if they can generate the same level of demand as the bitcoin ETPs.
Even if the increase in demand doesn't reach spot bitcoin ETP levels, supporters hope other factors can help drive prices higher. For example, a significant portion of the available ether supply is currently staked, meaning it's locked up and can't be sold. The Ethereum network also burns (i.e., deletes) a portion of the supply after every transaction. The argument is that these factors could cut supply in the face of increasing demand from the ETPs, which supporters hope will push prices higher.
It remains to be seen whether these theses play out in reality.
Will the spot ether ETPs enable staking?
The first round of ether ETPs will not offer staking capabilities, due in part to regulatory uncertainties surrounding the practice of staking.
Wadington thinks this could make the ETPs less appealing in the short term, as the ability to stake is an essential function of owning ether. Staked ether potentially benefits the Ethereum network in a number of ways, like helping improve its security and providing a mechanism for verifying transactions. It benefits ether holders too, allowing them to earn yield (which can be thought of like interest) on their staked assets.
"Long-term ether holders likely have the most desire to stake. So if staking becomes a product feature, it could draw in a larger crowd of investors, as it creates more alignment with ether's core thesis."
Whether or not this comes to pass will be a key factor to watch going forward.
What's on the horizon for crypto regulations?
Historically, domestic regulations regarding crypto have lacked clarity. However, several developments suggest things could be changing. Recently, the US House approved the FIT21 bill with bipartisan support. The bill takes a significant step forward in terms of establishing clear regulations for digital assets.
Elsewhere, the approval of a rule change that allows spot ethers ETP in late May was a surprise, as many in the industry did not expect it to receive the green light this early. And crypto has received some positive news coverage recently after a few presidential candidates have said they support the industry.
These developments don't mean that domestic policy is guaranteed to turn pro-crypto, but it's a key area to watch going forward. If the tide does indeed shift in this direction, it could open the door for a new wave of innovation.