Crypto in Q1 — Bear Markets, Politics & Regulation
The first quarter of the year is wrapped up, and a lot has happened in that time. As you’ve probably gathered from the image above, Dubai has a considerable amount to do with it…
Here’s the most notable things that we observed throughout Q1, and what we think traders can look out for in the coming quarter.
What we saw in Q1:
A Major Crypto Drop Off
With 2022 in its mere infancy, crypto markets started to take a considerable fall. By the end of the first week of the year, Bitcoin had lost over $6k of its value, and continued to tumble in the weeks ahead. Two considerable and notable sell off points occurred in both mid-January and towards the end of February — the former looking like a major bear market, and the latter being influenced by geopolitical events occurring in Eastern Europe. While Bitcoin has bounced back to its position at the beginning of the year, it hasn’t been without its trials and tribulations.
The likes of Solana, Polkadot and Polygon all lost at least half of their value at their lowest points, while Ethereum and Dogecoin lost at least 40%. Ethereum started the year close to the $3.8k mark, and fell to $2.2k at its lowest. It has been a three month period where there has been much instability and a lot of eyes on the crypto world — and not always for the better. This has manifested itself in some of the market levels.
Crypto Can’t Exempt Itself from Politics
Crypto has always been an entity that exists on its own two feet. It is decentralized by its very nature, and is not under the jurisdiction of any governments or central institutions. However, in the first period of 2022 we came to see how crypto cannot exist in its own world, and the politics of the day will have an impact on the market should events be significant enough.
Throughout the beginning of 2022, there was a political situation unraveling in Eastern Europe that resulted in the full scale invasion of a sovereign country. For those in the crypto world that believed crypto could exist as an entity away from the strings attached to the political world, this such instance proved otherwise. Markets dropped significantly, and though a counter-argument can be made about the speed of its recovery from this drop (and subsequent opportunities that crypto created in a time of conflict) it was clear that cryptocurrencies were not exempt from the storms felt in parliaments.
To that end, we saw an intertwining of both crypto and politics to the greatest degree that we have ever seen in Q1:
New Crypto Regulation, and the Creation of Opportunities
Crypto and Politics was a hot topic in Q1, undoubtedly fueled by the introduction of crypto regulation in some significant countries across the world. India made significant moves towards clamping down on crypto use, introducing a 30% income tax. The United States President Joe Biden ordered a review into the use of cryptocurrencies, as well as the opportunities they can bring, so we must watch this space with the findings. However, not all moves made by governments were with the aim of restricting crypto use.
Dubai has accelerated its position as something of a world crypto hub, not in spite of its recently introduced regulations but, actually, because of them. Dubai want to be the home of crypto, and have introduced a regulatory watchdog to ensure that there is ‘maximum transparency and security for investors’ in the sector. This has been interpreted as a very positive step, and has created a mandate for the crypto industry to operate freely but fairly in the region. The move has already attracted some major crypto players to the region.
In the height of war, Ukraine legalized cryptocurrencies and began accepting them as a means of donation. While this may seem like an opportunistic moment to push through such legislation, the move appears to be born out of realizing how crypto can circumvent some financial aspects to continue operating in a conflict situation — something that can’t always be guaranteed by centralized banking systems. More, this was a means of the Ukrainian government ensuring that its citizens could access their assets. With that in mind,
Looking ahead to Q2
It would be a surprise if this was the end of the crypto and politics conversation, and we feel that there is plenty more to come from moves made by governments to regulate the industry. Moves made by India and Dubai — although contrasting in their nature — show that there is a debate to be had about how cryptocurrencies can be welcomed into society, and how politics can ensure that its scope of influence remains fair and in the interests of traders. Watch this space for more moves.
One thing that experts are predicting is bullish sentiment in the markets. Prices are, according to avoid traders, currently well below their true value as a result of the Q1 value drops. This provides newcomers to certain markets with an opportunity to purchase crypto at a price that is lower than what they may have paid only a few months ago. When this approach is adopted en masse, you can expect to see a bull run.
Alluding to the point regarding the introduction of more regulation, not only may we see more enter the market, we can expect to see what the impact of already introduced regulation will be. We have seen that more and more cryptocurrency companies are adopting Dubai as their home, owing to the favorable conditions that the Emirate have created for both crypto companies and traders themselves. It will be interesting to observe what impact this has on Indian crypto companies and traders, as the impact of the 30% income tax will start to be felt. Early signs show that transaction volumes are falling already, and can no doubt be expected to continue falling.
With that said, it would be a surprise to see falling crypto prices continue, especially in the context of bullish market sentiment. This is particularly true in the context of crypto’s history — drops in value have for the most part been met by rallies in value. There’s never a bad time to get started in crypto, but if you’re looking for an ideal time, now might just be it.