Cryptocurrencies had a rough period in 2022, with prices dropping by sizable amounts, particularly following the uptrends of 2021, when values reached all-time high levels. However, many investors remained optimistic that the situation will soon improve and that things will stabilize sooner rather than later. Their beliefs turned out to be accurate as January 2023 rolled in. Prices began climbing, and as news of a bullish tendency began unfolding, users turned to buy Ethereum to increase their chances of profit.
However, it wasn’t all smooth sailing. Regulatory pressures came in quite strongly, causing pricing to remain uncertain as investors remained cautious. Now, it seems like cryptocurrencies are caught in a slump, and there’ll still be some time until they can regain their strength. But what are the reasons for this?
August 2023 will likely be marked by price stagnation for Ethereum. After a decisive 200-day moving average rebound in June, there has been a lack of bullish momentum. The price continues returning to the 50-day average at the $1,900 milestone, failing to gain the necessary impetus to climb above $2,000. However, there’s still hope prices will recover their strength soon, and the subsequent rally is just around the corner.
At the moment, the price seems to be anchored in the short-term support level at $1,850. There’s an additional safety net at $1,750 if the former level fails to hold. There are a few incoming insights from the RSI indicator, which is currently shifting around 50%. This is a clear indicator of a looming indecisiveness permeating the market and affecting how participants choose their strategies.
The current atmosphere in the crypto market can undoubtedly be traced back to the collapse of several noteworthy exchanges back in 2022. Since then, many investors have begun to view the ecosystem far more cautiously, aware of the possible fallout of such an event. Although 2023 began with a fresh start, the lack of substantial improvement in macroeconomics and the presence of continuing inflation didn’t signal anything positive for the crypto environment.
The market sentiment has been, in turn, changing from “fear” to “greed” and currently sits at “neutral.” This isn’t a surprise for many, considering that digital finance is well-known for volatility and continuous pricing fluctuations. However, up until the middle of summer, 2023 provided a relatively steady environment for cryptocurrencies. That seems to be a thing of the past now, as the market is yet again showing signs of nervousness due to the impact on liquidity.
Liquid staking tokens have become increasingly popular on the Ethereum blockchain, with some wondering if they will eventually replace the platform’s native currency. There are many advantages that come with using them, making LSTs particularly attractive to investors. The first is that they can be staked and used in other transactions at the same time, allowing better asset flexibility. The tokens are also a surefire way to establish a consistent stream of revenue. However, analysts observing the market’s evolution have begun discussing how this new feature might do more harm than good.
Statistics show that the liquid staking derivatives marketplace recorded a steep increase in the overall locked value in 2023, climbing to over $22 billion. The market capitalization level has also succeeded in reaching $18 billion. This is undeniably positive for the communities, as it signifies consistent growth. But there are some drawbacks. Derivatives protocols operate based on a considerable number of centralized validator nodes. Researchers believe there’s cause for concern in this area, and it could ultimately hurt the fundamentally decentralized characteristics of the ETH blockchain.
The increased risk of censorship and a reduction in competition could follow. Incentives or regulatory pressure could disrupt the system and diminish people’s trust in their transactions. There’s also the problem of decreased security. 51% attacks become more probable in a centralized scenario, and they could have devastating consequences for the larger market, leading to considerable loss of assets.
Centralized stakers could also potentially collude to perform different tasks or actions that negate the concept of decentralization. In a hypothetical scenario, these activities would most certainly be malicious. However, other investors take a more positive view of this marketplace, pointing out that liquid staking is still a relatively new thing. It’s very likely that improvements in decentralization will soon follow to create a more resilient network.
So, is it safe to invest in cryptocurrencies at the moment? While those that tend to be extra cautious would advise against it, it’s worth remembering that there will always be a certain degree of volatility involved when performing any transaction or engaging in a trade. The bullish run is still not entirely out of the picture, so there will probably be another rally soon that changes the look of the crypto environment.
However, predicting exactly when this will occur is impossible, so it’s important to remain cautious over the following months. Taking one too many risks and opting for a more reckless strategy might seem to pay off in the beginning, but it can be detrimental in the long run. It’s better to continue observing the market and not invest more than you feel comfortable potentially losing.
With that in mind, it’s important to remember that the crypto market experienced much more difficult times during its history. 2022 is the most obvious example, as the market navigated the most extreme bear market since Bitcoin’s launch in 2009. It wasn’t just about the crash of several exchanges and currencies; the after-effects of the war in Ukraine and the push for tighter regulations came together and left a profoundly negative impact on the digital finance ecosystem.
According to research, popular cryptocurrencies that are also more stable, such as Ethereum, are a safe bet during the current scenario. They’re still a perfect way to diversify a portfolio.
To sum up, the crypto environment is not fully recovered yet. However, it has made considerable leaps since the beginning of the year, and while the prices are still stagnating, it won’t be long until the situation improves.