Sharp increase in cryptocurrency capitalization: reasons, examples, and forecasts
Cryptocurrency capitalization is the total value of all coins in the market, calculated as the asset price multiplied by its circulating supply. Its sharp increase can be triggered by a combination of fundamental, technical, and psychological factors. Let's consider the key reasons and consequences of such growth.
1. Main Reasons for the Sharp Rise in Capitalization
a. Macroeconomic Factors
- Decreasing interest rates: When central banks (e.g., the Fed) ease monetary policy, investors shift to riskier assets, including cryptocurrencies.
- Inflation and flight from fiat: In conditions of high inflation, cryptocurrencies (especially Bitcoin) are viewed as 'digital gold'.
- Dollar weakening: The rise of cryptocurrencies often correlates with a decline in the DXY index.
b. Institutional Demand
- Entry of major players: The arrival of companies (MicroStrategy, Tesla) and hedge funds (Grayscale) boosts confidence.
- Crypto-ETF: Approval of exchange-traded funds (e.g., Bitcoin-ETF in the USA) opens access for traditional investors.
- Corporate Treasuries: Companies adding BTC and ETH to reserves for diversification.
c. Technological Innovations
- Blockchain updates:
- Ethereum after the transition to PoS (The Merge) and the implementation of sharding.
- Bitcoin with Taproot and Lightning Network.
- DeFi and NFT: Growth of TVL (Total Value Locked) in DeFi protocols and excitement around NFT collections.
- Metaverses and GameFi: Projects like Decentraland and Axie Infinity attract mass users.
c. Regulatory Changes
- Legalization: Countries like El Salvador or the UAE that recognize cryptocurrencies stimulate global acceptance.
- Clear rules: Regulatory frameworks (e.g., in the EU through MiCA) reduce uncertainty.
d. Market Sentiments
- FOMO (Fear of Missing Out): Massive influx of retail investors due to the fear of missing out on profits.
- Influence of media and influencers: Elon Musk's tweets, media mentions, viral trends (meme coins like Dogecoin).
2. Examples of Historical Capitalization Jumps
- 2017: Growth from $18 billion to $800 billion due to the ICO boom and hype around Bitcoin.
- 2020–2021: Capitalization reached $3 trillion on the wave of the DeFi revolution, NFT hype, and institutional demand.
- 2023–2024: Growth due to the approval of Bitcoin-ETF, updates to Ethereum, and excitement around AI tokens (e.g., FET, AGIX).
3. Current Growth Drivers (2024)
- Approval of Bitcoin-ETF in the USA: Influx of capital from institutional investors.
- Bitcoin halving (April 2024): Reduced BTC issuance increases scarcity.
- AI and RWAs (Real-World Assets): Tokenization of real assets and integration of AI into blockchain.
- Staking and yield: The annual yield of ETH staking (4–6%) attracts conservative investors.
4. Risks and Limitations
- Correction after growth: The market often overheats, leading to sharp declines (example: the 2022 crash of 70%).
- Regulatory threats: Bans in key countries (China, India) or pressure from the SEC on altcoins.
- Technological failures: Hacks of DeFi protocols (e.g., Poly Network in 2021) undermine trust.
- Macroeconomic instability: Rising inflation or tightening monetary policy.
5. Forecasts and Recommendations
- Short term (2024): Capitalization could reach $5–7 trillion if Bitcoin surpasses $100,000 and Ethereum reaches $5,000.
- Long term: Sustainable growth depends on the mass adoption of Web3, CBDCs, and the integration of cryptocurrencies into traditional finance.
- Tips for investors:
- Diversify your portfolio (BTC, ETH, stablecoins, promising altcoins).
- Avoid margin trading at peaks.
- Watch for key events: network updates, regulatory decisions, macro statistics.
Conclusion: The sharp increase in cryptocurrency capitalization is the result of a combination of technological progress, institutional interest, and global economic trends. However, the market remains volatile, and surges are often followed by corrections. It is important for investors to maintain discipline, analyze fundamental factors, and not succumb to emotions.
P.S. To everyone who writes that, for example, #Xrp🔥🔥 cannot reach $50~113 because it's an incredible capitalization, and this is just Swift directing 25% of its transfers integrating with XRP.