The cryptocurrency market capitalization is bucking above the $1 trillion threshold again as beaten down cryptos begin their recovery from nine months of bleeding losses.
The global cryptocurrencies chart here, shows the evolution of total cryptocurrency market capitalization from August 2013 to August 2022.
The crypto chart mirrors the investor psychology cycle going from disbelief, hope, optimism, belief, thrill, complacency, anxiety, denial, and panic.
Cryptocurrencies have not lost their popularity, and they are in the hope stage of the investor psychology cycle.
“The cryptocurrency market capitalization is bucking above the $1 trillion threshold again”
Cryptos recapturing the $1 trillion threshold gives some relief and hope that the thawing has begun
The worst of the crypto winter, which saw more than $2 trillion wiped off crypto market capitalization, could be over.
What are the main drivers pushing cryptocurrencies over the $1 trillion threshold?
There are macro factors improving demand for risk assets.
The central bank liquidity cycle is nearing peak tightening with the two consecutive negative quarters of GDP growth.
The latest in July confirms that the world’s largest economy is in recession.
Demand destruction is causing retail inventory bloats, businesses are cutting investment plans, and layoffs continue to rise.
In a backdrop of deteriorating economic data, it will be politically difficult for central banks to continue with an aggressive tightening policy in the mixt of a full-blown recession.
“the world’s largest economy is in recession”
So investors are front-running central bank policy, positioning their portfolios along the risk curve as monetary policy transitions from aggressive tightening to neutral and easing.
With central bank liquidity in a trough and the investor psychology cycle emerging from a depression demand, for beaten down risky assets rise as investors begin to bargain hunt risk assets.
“we would believe that cryptocurrencies are at the early stage of a long technology wave” – Win Investing
There could be another reason that the cryptocurrency market capitalization has retaken the $1 trillion threshold
Some argue that the relief rally could be nothing more than a bull trap, but focusing on smart contracts using blockchain technology, we would believe that cryptocurrencies are at the early stage of a long technology wave.
The application of Smart contracts technology is already revolutionizing how businesses and entities interact with their end client.
Moreover, the disruptive potential of smart contracts is in its early infancy.
Smart contracts remove the need for an intermediary between parties.
On 27 April 2021, The European Investment Bank EIB launched a digital bond issuance on a blockchain platform by placing EUR 100m 2-year bond, placed with key market investors. EIB’s adoption of blockchain technology pioneered the primary issuance of digitally native tokens using Ethereum blockchain technology.
So the digitalization of capital markets is likely to benefit future investors by reducing intermediaries’ commission costs, improving transparency, and improving settlement speed.
We are just at the infancy stage of understanding how to deploy blockchain technology to improve business efficiency and end-user service.
In Healthcare alone, smart contract size was valued at $1.7B in 2021 and is expected to grow by $7.9B by 2030.
Future home buyers could soon be able to purchase property with a few clicks of a mouse, thereby avoiding expensive legal convenience fees. Global traders could bypass intermediary escrow accounts and transact directly on smart contracts on blockchain networks.
“The key takeaway is that proof of work is the most difficult consensus mechanism to hack” – Darren Winters
Cryptocurrency market capitalization has retaken the $1 trillion threshold because investors realize the evolution of internet technology
The utility of the technology and its scarcity will continue to drive the cryptocurrency market higher.
But the value of the network is determined by its utility and immutability the ability for a blockchain ledger to remain a permanent, indelible, and unalterable history of transactions.
In a piece entitled, Consensus Mechanism dated August 2021, investor Darren Winters wrote:
“The key takeaway is that proof of work is the most difficult consensus mechanism to hack.” So “mega value is in proof-of-work tokens,” we added.
Fast forward to one-year cryptocurrency market capitalization has retaken the $1 trillion threshold, and it’s the proof of work tokens that are the cavalry in your crypto portfolio leading the charge
So the hash rate migration toward alternative PoW cryptocurrencies which has spurred a relief rally on coins like Ethereum Classic and Raven Coin will come as no surprise.
Hashrate migration causes altcoin rallies, bearing in mind Ethereum shutting down the PoW in September. So cryptocurrency miners are scrambling for alternative options so that they can keep their engines revving.
The alternative would be for PoW miners to shut down their engines. So one of the most notable projects that can become the new “Ethereum 1.0” could be Ethereum Classic. Perhaps that is why ETC’s hash rate already saw a massive 50% increase, which indicates that a large number of miners are connecting their rigs to the network.
The profitability of ETC mining per 1 MH has already equaled that of Ethereum.
But ETC is not the only winner emerging from the merge, as other PoW coins like Ravencoin are also experiencing a massive increase in hash rate and price. RVN gained around 50% of its value in the last two days as more investors are looking for exposure to alternative L1 networks.