Is it crypto’s time to shine (again?)

Bitcoin is up 63% since the start of 2023. But the past year for crypto has not been plain sailing - even by crypto standards. On 16 April, Bitcoin reached R574,000 ($30,330) - the highest price point of 2023.

Even though there has been a retraction recently, crypto is an asset class that has made tremendous progress in a very short time.

Compared to just three years ago Bitcoin has grown by 179%.

Developments in the market

It’s been an eventful year in the crypto market with many regulatory movements and conversations making headlines. Ethereum successfully executed the Shanghai merge which means that staked Ethereum can now be withdrawn from the blockchain. Bitcoin and Ethereum often draw the bulk of the interest, and we’ve seen a lot of focus and attention on other altcoins and meme coins. The aggressive gains from these tokens are often short lived and they border on the riskier side of the spectrum.

European lawmakers have voted to adopt a comprehensive set of crypto regulations in the form of the MiCA (Markets in Crypto Assets) - a landmark moment for the crypto industry.

Patterns and price movements

Historically we have seen that Bitcoin starts to perform in the run-up to an event which takes place every four years - the halving. The Bitcoin halving reduces rewards for successfully mining new Bitcoin by 50% with the aim of reducing the Bitcoin supply. Halving is just one fact impacting price this year - and core to the investment case for Bitcoin as a store of value with limited supply.

However, many still continue to declare Bitcoin finished whenever the price falls. Luno’s view is that the technology that drives cryptocurrencies is one of the most important financial innovations of our time and even a lower price does not reflect the long-term value that cryptocurrencies will bring.

Standard Chartered recently predicted that the price of Bitcoin would reach over USD 100,00 by the end of 2024.

Trading activity

On Luno we are seeing consistently higher trading volumes in South Africa, which give us the confidence that the crypto market is still very active - even when markets contract.

Customer check ins

In terms of customer activity, we can see that more than 250 000 customers in South Africa engage with the Luno app weekly. This means that people are keeping a close eye on market movements - checking in and staying informed. We also have a large loyal customer base that actively transact, building their portfolios.

Risk appetite a key factor in market movements

In traditional finance, the banking sector is under pressure following the closures of Silicon Valley Bank, Signature Bank and more recently First Republic Bank in the US.

During times of economic turmoil, investors tend to move from risk assets into cash or traditional safe haven assets such as gold - gold has gained 11% year-to-date. Investors whose risk appetite doesn't align with the volatility of crypto prices will sell.

When traders are unsure about crypto prices, they flee to stablecoins and bank deposits. When they are unsure about stablecoins and bank deposits, it’s crypto’s time to shine.

Economic stresses and consequences

The market is battling the consequences of rapidly rising US interest rates and continued military conflict in Europe.

If you’re a trader, the volatility can be stressful and potentially profitable, but if you believe in crypto as the future of money, your investment objectives are long-term and therefore short-term volatility will matter less to you.

While there are tens of thousands of cryptocurrencies in circulation, Luno carefully curates the coins offered on its platform, offering only eleven coins vetted to meet stringent legal, risk and security standards. As a trusted guide to the world of crypto, Luno also continues to focus on providing free content to ensure that crypto investors are well informed to invest in a way that’s right for them.

As awareness and exposure to crypto grows worldwide, and after a market shakeout like the one experienced in 2022, the market will likely retain the coins and crypto companies that are trusted and add value.