As the holiday season approaches, anticipation is growing in the cryptocurrency world for the annual phenomenon known as the “Santa rally.” Amid this festive period, market dynamics tend to change. In this season, there are several factors that could influence the last months of the year.
Increase in institutional investment
Cryptocurrency prices surged noticeably in late 2020 and 2021, driven by increased investor optimism and institutional interest. Major financial institutions and hedge funds began to view bitcoin (btc) not only as a speculative asset but as a hedge against inflation and a potential store of value. Large companies like Square and MicroStrategy added significant bitcoin holdings to their balance sheets, further solidifying this makeover.
Furthermore, bitcoin reached all-time highs, generating positive sentiment throughout the market. Additionally, institutional investment was demonstrated when companies like Tesla publicly announced large-scale bitcoin acquisitions. Additionally, the introduction of a number of cryptocurrency ETFs and funds provided institutional investors with a more convenient and familiar way to access the market.
The companies serve institutional investors looking for secure storage options for their cryptocurrency holdings in the rapidly evolving financial landscape of 2022, offering custody services, which are essential for safeguarding digital assets.
Related: bitcoin is evolving into a multi-asset network
Despite some fluctuations, the trajectory was generally upward in 2022. Once skeptical, traditional financial institutions began offering a variety of crypto services, such as lending, trading, and custody. Institutional players have also recognized the rise of decentralized finance (DeFi) and non-fungible tokens (NFTs), particularly venture capital firms and specialized funds seeking new investment opportunities.
For example, prominent financial institutions collaborated to establish EDX Markets (EDXM), a novel exchange designed for the trading of digital assets through trusted intermediaries. This platform will serve both institutional and retail investors, ensuring a secure environment for trading digital assets. Prominent sponsors of this initiative include renowned entities such as Charles Schwab, Fidelity Digital Assets, Paradigm, Sequoia Capital, Citadel Securities and Virtu Financial, reinforcing the credibility and strength of the exchange within the market.
In 2022, despite the crypto winter, development in the crypto sector increased by 5%, indicating sustained interest in the underlying technology. Additionally, a 2022 Celent survey revealed 91% of institutional investors are interested in investing in tokenized assets, highlighting the strong demand.
The coming season could see an even greater influx of institutional capital into the cryptocurrency domain, exemplified by entities like MicroStrategy, which is expanding its cryptocurrency holdings by acquiring an additional 1,045 bitcoin for its growing treasury. Furthermore, EY-Parthenon research reveals that the majority of institutional investors hold a strong belief in the lasting value of blockchain technology and crypto assets, leading them to plan a substantial expansion of digital asset investments over the next two to three years.
Additionally, there is growing interest among investors in participating in tokenized financial assets, leading institutions to actively explore opportunities to tokenize their own assets in response to the changing financial landscape. As the industry continues to mature and gain legitimacy, new financial products designed specifically for institutional investors could emerge, making it even easier for them to enter the market.
Regulatory clarity
In 2020, as the cryptocurrency market grew, it inevitably caught the attention of regulators around the world. Some nations responded by enacting outright bans, but others took a more measured approach and began the process of developing regulatory frameworks to monitor and control the rapidly expanding digital asset domain.
In 2021, US regulatory developments, particularly those related to the SEC’s position on cryptocurrencies, became central to the global narrative surrounding cryptocurrencies. The industry was on alert due to ongoing discussions over cryptocurrency regulations and pressure for the approval of bitcoin ETFs. At the same time, there have been major market realignments and talks about decentralization as a result of China’s crackdown on cryptocurrency mining and trading.
The cryptocurrency regulatory environment began to evolve in 2022. After preliminary discussions, several nations established precise legislative frameworks with rules governing cryptocurrencies, initial coin offerings (ICOs), and DeFi platforms. At the same time, there was a rise in the global movement to create central bank digital currencies (CBDCs), with many countries introducing or testing their own digital currencies.
This year, major events reshaped the global cryptocurrency landscape. For example, Thailand’s Securities and Exchange Commission is set to ease restrictions on retail investments related to ICOs, with the aim of stimulating digital investments and fostering market growth.
Meanwhile, the European Union took decisive action by enacting the Markets in crypto Assets (MiCA) regulatory framework in April 2023, ushering in a new era of comprehensive crypto regulations within the region.
Related: IRS Proposes Unprecedented Data Collection on Cryptocurrency Users
A pivotal moment occurred in July 2023 when a ruling by US Circuit Judge Analisa Torres affirmed Ripple’s compliance with the law regarding sales of XRP on public exchanges, marking a major legal victory for the sector. of cryptocurrencies against US regulators. However, she also clarified that Ripple had violated securities laws by offering XRP to hedge funds and institutional buyers.
In September, four members of the United States Congress rallied for Securities and Exchange Commission Chairman Gary Gensler to immediately approve bitcoin spot listings. As these events have unfolded, we have also seen growing anticipation of a spot bitcoin ETF. This potential milestone offers the prospect of introducing clearer regulatory frameworks, providing the cryptocurrency industry and investors with a more structured and defined path forward.
The confluence of ai and Web3
The convergence of Web3 technology and ai began to dramatically alter the cryptocurrency environment in the final months of 2020. Predictive analytics and ai-powered trading algorithms gained popularity, allowing institutional and individual investors make data-driven decisions in the erratic cryptocurrency market. With the use of this technology, market analysis was improved, allowing investors to predict price fluctuations and make the most of their trading tactics during the rally.
The relationship between Web3 and artificial intelligence (ai) strengthened in 2021. ai-powered DApps became more prevalent and provided innovative solutions in fields such as nft and DeFi. The market gained momentum as a result of this integration, making yield farming and nft creation and trading more effective. ai-powered sentiment analysis tools also played a crucial role, providing insights into market sentiment and trends, helping investors make informed decisions.
In 2022, we witnessed the maturation of ai and Web3 integration with projects like Aave, which uses ai algorithms to streamline lending processes, and Rarible’s use of ai to provide individualized selection of NFTs. These initiatives showed secure, automated and trustless transactions, which increased investor confidence.
The confluence of ai and Web3 is set to redefine this holiday season once again. ai algorithms will be further developed, enabling proactive trading decisions and real-time monitoring of market data. Web3 technologies are expected to support creative investment models and decision-making procedures, particularly in the areas of decentralized autonomous organizations (DAOs) and ai-powered governance systems.
The incorporation of ai-generated content into cryptocurrencies in the form of NFTs and ai-powered virtual reality experiences could be a driving force in the market in the coming months. That enthusiasm could contribute to new liquidity in the markets and the development of the industry.
Guneet Kaur She joined Cointelegraph as an editor in 2021. She holds a Master of Science in Financial technology from the University of Stirling and an MBA from Guru Nanak Dev University in India.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
