February 2023 – Forbes Advisor INDIA

After a rough and tumble stretch of downturns and falls, the cryptocurrency market is finally witnessing bullish momentum on the back of relaxed global macroeconomic headwinds and cooling inflation. The global crypto market cap has crossed more than a $1 trillion mark, supported by high and stable trading volumes.

The poster boys of the crypto market – Bitcoin and Ethereum – showed incredible stability and both have managed to trade in positive territory since a month. Experts expect this rally to continue even in the coming weeks due to a slight indication of ease in macroeconomic conditions worldwide and especially in the key markets of the US and the UK.

Let’s take a look at the main reasons that have made the crypto market bullish and what should be the approach of investors in this unexpected crypto rally.

Crypto markets on the road to recovery

Overall, the broader cryptocurrency market provided a fresh pump this year with major coins taking the lead. The world’s largest cryptocurrency Bitcoin bounced back strongly and traded near the $23,500 levels with a positive change. From the lowest point in 2022 – $15,523, reached on November 9, BTC has shown almost 40% rally in the month of January 2023, which reached a 30-day high of $23,954 on January 29, 2023.

Similarly, Ethereum has also shown tremendous strength, jumping almost 5% in the past week, with today’s price trading at $1,644.

The Altcoins market has also performed tremendously well and shown great strength over the past two weeks. ADA and SOL have risen over 20% each since the beginning of 2023. However, other altcoins such as AVAX (82%), FTM (143%) and especially APT (382%) have had an impressive performance in January compared to last year. The broader crypto market is trading in the “green”, adding much to the delight of crypto investors.

All the major cryptocurrencies faced a massive correction until the end of last year, after the collapse of the crypto exchange FTX in November 2022. The crypto market ended the year 2022 with a dizzying approach. However, it is pretty clear that now bulls are back in the show in 2023.

How did the crypto market turn bullish?

The cryptocurrency market has registered some positive signs due to ease in macro economic activities which has led the crypto price to rise. Also, the total trading volume of the crypto market has reached levels not seen since June 2021.

This rally in the crypto market was largely seen as soon as the US Federal Reserve decided on a smaller interest rate cut of 25 basis points (bps) instead of a 75 bps hike amid cooling inflation, solid employment data and a pick-up in GDP numbers. It was expected that the Fed could take an aggressive approach and could make an interest rate increase of 75 bps. Thus, the current rate hike of 25 bps has been welcomed with a positive tone by crypto market players, suggesting that the Fed may be on the winning side in the fight against inflation.

Furthermore, the rate hike decision has also directly affected the US dollar and weakened it to a great extent, as the weak dollar has always boosted the price of cryptocurrencies.

Not only the US market, but several macroeconomic factors have also indicated weak signs of recovery in China and the other major global economies. Apart from these factors, the re-opening of China’s borders after almost three years of Covid-19 shutdown and efforts by other central banks to tackle inflation have improved sentiments in the crypto market.

The past five to six months have been no less than a roller coaster ride for the cryptocurrency market. Due to massive global uncertainty and FTX fallout, the markets have been hit worse. Let’s take a look at the market cap figures for the past year, from November 2022 to February 2023:

Crypto market value

What Should Indian Investors Do in Crypto Rally?

The upside momentum in cryptocurrencies may bring back not only the retail investors but also high net worth individuals, institutional investors and corporates to grab some of the wild short-term trading gains.

While there is an upswing in the crypto markets, it is important to follow the simple rules and strategies to invest wisely, such as:

• Diversify your portfolio and invest in a mix of investments.
• Spread your risk to reduce the impact of a potential decline in any specific crypto.
• Do you do research (DYOR) and keep up to date with industry developments.
• Don’t make impulsive decisions and get caught up in the hype.
• Follow a disciplined investment pattern.
• Finally, security should be a top priority for investors, so keep your crypto assets in secure wallets with proper backups and safeguards in place.

Experts observe that crypto investors should continue to take a cautious approach as any new development in this area could lead to extreme situations.

According to the research team of one of the largest Indian crypto exchanges, CoinDCX, “This time the narrative is different as it is more macro driven, project development driven and such momentum can be treated as a rally in the middle of the bear market. So investors in such a narrative should keep limited exposure to the small cap token and distribute the majority to projects that are fundamentally strong and are developing day by day.”

Raj Karkara, COO, Zebpay, advocates an education first as it is important to regularly monitor the crypto market and stay updated with news and technical analysis.

“It is important that investors fully understand the fundamentals of a crypto token before investing. There are several investment strategies one can use during a rally, so one can invest wisely.” Karkara said.

CEO and founder of Taxnodes, Avinash Shekhar, advises Indian investors not to go just by word of mouth or popular narratives, rather spend time understanding the fundamentals of the crypto space.

“Investors should start with small amounts and gradually increase their exposure by making informed investment decisions rather than betting on speculation. As an asset class, cryptocurrencies are currently volatile. However, supported by innovation and enabling regulations, the true potential of the Web3 space will start to materialize and cryptocurrencies as an asset class will mature,” Shekhar said.

Undoubtedly, the crypto markets seem to be recovering from the recent crash, but the feeling of “fear” continues in the crypto community. Experts strongly feel that the sentiment remains mixed for the Indian crypto industry as they were too hopeful to get a breather in the tax rate from the government, but the Union Budget 2023 announced on February 1, 2023, skipped any new mentions of tax relief to the sector.

In India, high tax and regulatory uncertainty remains, but with the light macroeconomic conditions worldwide, trading volumes on Indian exchanges are expected to rise from rock bottom prices. Investors have been advised to continue to trade with caution and vigilance, as one never knows whether the crypto rally is here to stay or not.