2022 presented formidable challenges for the cryptocurrency industry(XRP), with the entire market enduring a prolonged period of bearish conditions. Despite some signs of recovery this year, the bearish sentiment continued to prevail. Nevertheless, recent developments, particularly those occurring in the past few months and notably this week, have instilled a growing belief that the bear market could be reaching its conclusion.
The Bear’s Retreat: Key Reasons
- XRP’s Victory
Ripple was involved in a lengthy legal battle with the Securities and Exchange Commission (SEC) regarding the classification of XRP. The SEC aimed to classify XRP as a security rather than a cryptocurrency. However, a pivotal moment arose when Judge Analisa Torres ruled in favor of Ripple, determining that XRP should not be considered a security. This triumph not only weakens the SEC’s authority to categorize all tokens as securities but also undermines their case for classifying the token most likely to be deemed a security.
According to Greg Moritz, the COO of Alt-Tab Capital, if centralized crypto projects are not considered securities, it could lead to the Commodity Futures Trading Commission (CFTC) becoming the primary regulator for the industry. This shift in regulatory dynamics is generally favored by the crypto community. The evolving regulatory landscape holds promising prospects for the industry’s future. - Macroeconomic Shifts
Arthur Cheong, the founder of DeFiance Capital, suggests that the most challenging phase of macroeconomic tightening has already passed. He points out that the Consumer Price Index (CPI) is on a decline, and interest rates have turned positive. Just recently, the U.S. inflation rate dropped to 3%. This development has increased the likelihood of witnessing rate cuts in the market within the next year. Typically, when inflation rises, various asset classes, including cryptocurrencies, tend to experience a decline. Despite Bitcoin being promoted as an inflation hedge, it has proven to be more of an asset that is resistant to the effects of inflation rather than fully immune to them.
XRP’s Rising Institutional Engagement
The recent upsurge of interest in spot Bitcoin ETFs provides supporting evidence for the aforementioned statement. The submission of a Bitcoin ETF application by BlackRock demonstrates the continued acceptance of cryptocurrencies as a recognized asset class among institutional investors. Additionally, XRP’s recent legal victory adds to this growing trend. Concerns over token classification as securities and trading on unregistered security token exchanges have previously deterred many prominent hedge funds from fully participating in the crypto market. However, the evolving dynamics of the market have the potential to attract greater institutional interest.
Cheong emphasizes that a substantial number of market participants, often referred to as “tourists,” who lacked long-term commitment or intent to hold tokens or remain active in the market, have already been eliminated. The bear market experienced in 2022 played a role in filtering out many of these tourists. Consequently, current token holders are less likely to engage in near-term selling activities.
Hong Kong recently took a significant step towards embracing cryptocurrencies by allowing retail traders to actively participate in the trading of digital assets. This strategic decision was made with the goal of reshaping the region as a leading hub for digital assets. Additionally, this move opens up substantial possibilities for financial institutions in Asia to enter the crypto market through legitimate channels, presenting them with new avenues for involvement.