Grayscale Research predicts Bitcoin could retest its all-time high later this year if the U.S. economy achieves a “soft landing.” The forecast comes amid recent market turbulence, with Ethereum, other crypto assets, and traditional markets experiencing sharp declines from Aug. 2 to Aug. 5.
As per the report, a weaker-than-expected U.S. employment report for July triggered fears of a cyclical downturn, leading to volatility across asset classes. While Bitcoin demonstrated resilience, Ethereum underperformed significantly, falling about 1.8x more than Bitcoin month-to-date in Aug. 2024.
Ethereum’s pronounced decline can be attributed to multiple factors. The outsized long positioning in perpetual futures, following the SEC’s approval of U.S. spot Ethereum ETPs, led to substantial liquidations during the recent drawdown. On Aug. 4 alone, Ethereum’s price plummeted 7.6% in just three minutes, with liquidations totaling $340 million.
Impact of liquidations and major holders on Ethereum
Selling pressure exerted by major stakeholders like Jump Crypto, Paradigm, and the Golem Network may have played a role in Ethereum’s relative underperformance. According to Grayscale Research, these entities held a combined value of approximately $1.5 billion in Ethereum tokens before initiating transactions.
Despite recent market turbulence, the situation has since calmed down. Specifically, the VIX index, which gauges implied volatility in U.S. stocks, dropped to 26% at the end of Thursday following a peak above 60% earlier that week.
Grayscale Research looks forward and suggests that the downside risk to cryptocurrency prices might not be as severe as in previous declines. They point to constant demand from new U.S.-listed ETPs and subdued returns on altcoins since the year began. Despite this, the company admits that economic uncertainty poses a short-term risk for crypto investors.
Nevertheless, Grayscale Research anticipates a proactive response from policymakers to any economic challenges, which could further strengthen the investment prospects of Bitcoin in the long run. As the market moves through these uncertain times, the focus will be on forthcoming economic indicators and decisions from central banks to assess the future direction.
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