Digital Assets Are Here to Stay Despite Facing Headwinds

Last year was a torrid year for crypto enthusiasts. The biggest cryptocurrency, Bitcoin, sank by 64%, while Ethereum fell by 67%. The value of Dogecoin, a joke cryptocurrency that later gained popularity among Elon Musk and his supporters, dropped by almost 60%.

In addition, many of the biggest exchanges either collapsed or are still facing legal troubles. The arrest of FTX’s founder, Sam Bankman-Fried, after the company’s collapse in November last year has shifted authorities’ attention to the industry.

However, the first few months of 2023 has seen a dramatic increase in the value of cryptocurrencies, with Bitcoin surging by an astounding 80%. It passed the $30,000 mark last week for the first time since June of last year. Ether and Dogecoin have also increased by 34% and 74%, respectively, since the start of 2023.

What then has caused crypto’s value to increase? One cause is the rising belief among economists this year that the U.S. Federal Reserve is almost done raising interest rates.

Similar to equities, cryptocurrencies are still quite susceptible to changes in interest rates, which is one of the reasons why they took a beating in 2022 after the Fed raised interest rates.

Another contributing factor is the return of market speculators. Last week, Coindesk reported that the proportion of daily Bitcoin trading volumes in spot markets to those in derivative markets had decreased to its lowest level in 11 months, signaling a resurgence of speculation in the cryptocurrency market.

One of the most remarkable aspects of this year’s cryptocurrency surge is how, despite traditional banking system shocks such as Silicon Valley Bank’s failure, cryptocurrencies managed these occurrences without a hitch. These circumstances in some respects contributed to reminding cryptocurrency supporters of the development of digital assets as a substitute for the conventional banking system during a global crisis.

There are more signs to suggest that digital assets will endure. Perhaps the most important of these is the recent revelation that the London Stock Exchange Group (LSEG) will start clearing cryptocurrency derivatives.

Despite this, it is important to note that crypto values have failed to maintain advances after reaching big milestones. For instance, when Bitcoin reached $30,000 last week, it found it difficult to maintain that level.

Additionally, some regulators are openly antagonistic as the industry is under closer global scrutiny. For instance, India’s Reserve Bank has urged for the outlawing of cryptocurrencies, comparing them to a Ponzi scheme.

On that premise, it appears that it will take some time before cryptocurrency valuations reach the peaks they reached in 2021. Nonetheless, industry actors such as Stronghold Digital Mining Inc. (NASDAQ: SDIG) may feel that the worst seems to be behind and they can look forward to a better future.

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