The three risks that endanger the Bitcoin rally in the third quarter
The tables have turned in the cryptocurrency market during this last month and quarter, and Bitcoin bulls are celebrating the recent rally , whose target is none other than the all-time highs at $65,000 of the queen of 'cryptos' in April. Sentiment is decidedly bullish and beyond possible profit-taking and occasional pullbacks, investors, especially the 'hodlers', the strong hands in the market, are confident that nothing can blow the upward momentum out of the water. However, Saxo Bank's experts identify three risks digital assets will face for the rest of the year.
Firstly, as Andres Nysteen, an analyst at the Danish investment bank, warns: " large movements in the cryptocurrency market and, in particular, in minor tokens, may not happen due to an underlying momentum of fundamentals". This expert warns that "they may simply be bubble-like movements in which traders buy solely to take advantage of the uptrend in prices."
A clear example would be the behavior of the 'altcoin' SHIBA INU, which accumulated a 323% rise so far this week, according to data from CoinMarketCap. The cryptoasset, which falls into the category of meme tokens , was founded in 2020, as a copy of another very famous crypto of this type: Doge. And as its "big sister", it has received a boost from Tesla CEO Elon Musk, who tweeted a picture of the Shiba Inu dog and generated massive purchases of the cryptocurrency.
Another factor to watch closely, according to Nysteen is regulation, as "decentralized protocols lack a regulatory framework and there is no legal protection for the investor". A single hacker attack can wipe out the entire investment . Many government agencies in countries like the US are pushing for increased regulation of decentralized finance, (DeFi), "which may have a significant impact on Ethereum and other smart contract blockchains, while Bitcoin should be less affected ."
On the other hand, "government efforts on the global green agenda may prove to be a drawback for Bitcoin," as the Saxo Bank analyst adds, as seen in China, where prior to the total crypto veto the cryptocurrency mining business was attacked , due to the high energy demands for running the Bitcoin blockchain. The impact, however, will be smaller on less energy-demanding and "greener" cryptocurrencies, as the expert assures.
MATURING OF INVESTORS AND CATALYSTS
The expert also detects a change in the investor profile . A recent survey shows that fewer cryptocurrency traders are buying these assets as a bet in 2021 than in 2020, and more see cryptocurrencies as an alternative to traditional investments . "The primary reason for buying cryptocurrencies is still to make a profit, both in the short and long term," he argues, "but some of the buyers want to employ cryptocurrencies for other things, such as transfers, payments and decentralized applications, and these additional features of this investment class have started to gain traction this year."
In terms of price catalysts, Nysteen explains that "the rest of 2021 will be driven by expectations around smart contract applications - on blockchains such as Ethereum, Solana or Cardano - and decentralized protocols." "We expect a greater risk appetite for decentralized protocols in the search for large returns, and this will add value to the amount locked up in DeFi protocols," he adds.