Crypto Market Cap Tops $1 Trillion – Could It Reach $5 Trillion by Year End?
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The cryptocurrency market has enjoyed a significant surge in the past week, with coin prices rising significantly and investor sentiment growing. However, after crossing the trillion-dollar peg recently, what are the chances of a 5x growth for the market this year?
Crypto Market Posts Gains as Inflation Cools
Entering 2023, the crypto market appears to be on track to recoup some of the losses suffered last year. Coin prices are increasing significantly, with the broader market also posting impressive gains.
The crypto market is currently valued at $990 billion, the first time it has reached this level since November 2022, before the collapse of the now-defunct FTX cryptocurrency exchange.
Significant increases in several top coins drive the current gains in the market. Investor sentiment toward digital assets is also improving, with Bitcoin climbing out of the “Fear” region of the Crypto Fear & Greed Index for the first time in nine months.
The current drop in inflation in the United States is the primary driver of the market’s gains. The world’s largest economy has been fighting rising inflation for months, and in order to control this metric, the Federal Reserve embarked on an aggressive hike in interest rates. The objective is to reduce the amount of money in circulation, thus cooling inflation and keeping the metric under control.
After several months, the Fed’s strategy is starting to yield some results. The Consumer Price Index (CPI) reported last week showed that inflation dropped by 0.1% last month, with the overall rate now standing at 6.5%. This has led many investors to speculate that the Fed could ease some of its monetary policies, allowing investors the freedom to purchase risky assets once more, especially cryptocurrencies.
Crypto Rises as the Dollar Falls
Another indicator of the market’s health is the drop in the dollar. Crypto prices and the dollar have moved in inverse directions for the past year, and with inflation now dropping, investors appear to be rotating out of the fiat currency.
The US Dollar Index (DXY), an index that measures the greenback’s growth against a basket of other major currencies, shows that the dollar has dropped in value significantly since the year started. This reflects a willingness from investors to rotate out of it and purchase other assets instead.
Rising inflation benefits the dollar because investors worldwide demand it to protect their wealth. However, as the metric begins to fall, investor appetite for the US dollar also appears to be waning.
Is $5 Trillion in Play?
As of now, the crypto market is back on a bull run. While whale investors are thrilled, it’s important to note that the market isn’t out of the woods.
For one, the Fed’s fight against inflation is still in play. Investors believe the agency will reduce interest rate hikes this year, but the Fed has indicated that it would only do what is in the economy’s best interest. If the Fed’s experts don’t think an interest rate slash is prudent at the Federal Open Market Committee (FOMC) meeting this month, then the crypto market’s choppy journey will continue.
There is also the continued fallout of the FTX exchange. Several big names in crypto – including the Digital Currency Group (DCG), crypto exchange Gemini, and more – are still looking to weather the storm and navigate the market without going bankrupt.
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