The crypto market faces a stormy horizon as a prominent analyst and a report send warning signals about the future of both digital assets and big tech stocks.
In a recent strategy session, Nicholas Merten, the popular host of DataDash, cautioned that cryptocurrencies and FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) could experience lackluster gains over the next few years.
Merten’s prognosis encompasses not only digital currencies like Bitcoin but also the broader altcoin space, which has historically seen exponential growth. He attributes this potential underperformance to several factors, with one key element being the contraction of market liquidity.
Contracting market liquidity refers to a reduction in the availability of assets for trading within a market. In the context of cryptocurrencies, it implies that there may be fewer buyers and sellers, leading to decreased trading volumes and potentially more volatile price movements. This phenomenon can occur due to various reasons, such as tighter regulations, decreased investor interest, or shifts in market sentiment.
Impact Of Hawkish Crypto Policies
One significant factor contributing to this gloomy outlook is the Federal Reserve’s hawkish policies. As the central bank adopts a more aggressive stance on monetary policy, investors may divert their attention and capital away from the crypto market and big tech stocks in favor of more traditional, stable assets.
The prospect of higher interest rates and reduced economic stimulus could deter riskier investments, including Bitcoin.
Regulatory uncertainty also casts a shadow over the crypto market’s future. Governments worldwide are grappling with how to regulate digital assets effectively. The lack of a clear and consistent regulatory framework creates uncertainty for investors and businesses operating in the cryptocurrency space. This uncertainty can lead to a lack of confidence, reducing overall market liquidity and dampening investor enthusiasm.
BTCUSD slightly above the $26K level. Chart: TradingView.com
Bloomberg Report Reinforces Concerns
Merten’s concerns find support in a Bloomberg report that emphasizes the end of the easy-money era in crypto market making. The report underscores that the heydays of effortless gains in the digital currency world are over. The combination of regulatory scrutiny, reduced liquidity, and shifting market dynamics is painting a challenging picture for crypto enthusiasts.
Prominent analysts like Merten and reports from reputable sources like Bloomberg suggest that both digital assets and technology giants may experience subdued gains in the years to come.
The contraction of market liquidity, influenced by factors such as hawkish central bank policies and regulatory ambiguity, adds to the growing concerns. Investors and market participants must remain vigilant and adapt to the evolving landscape as the crypto market navigates these stormy waters.
Featured image from Adaptive Capacity Labs
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Author: Christian Encila