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Experts analyzed the scenarios for changing the rate of the second cryptocurrency, proposed by Arthur Hayes, and drew attention to factors that could lead to other scenarios
The former head of the BitMEX crypto platform and a well-known cryptocurrency supporter, Arthur Hayes, claims in his new forecast that of all cryptocurrencies, Ethereum will bring the maximum profit by the end of the year. Hayes also calculated 4 possible scenarios for the price of the second cryptocurrency on March 31, 2023, in which he takes into account two factors: the change in Fed rates and the Ethereum “Merger” (transition of the blockchain to a new protocol) scheduled for September.
Scenario 1: the Fed’s reversal (a change in the regulator’s policy in the direction of reducing the key rate) and the successful “Merger” of Ethereum. According to the ex-head of BitMEX, this is the most plausible scenario in which the target price of ETH is $5,000.
Scenario 2: The Fed is not changing policy, but the Ethereum “Merger” is going well. At the same time, the expected value of the cryptocurrency is about $3.56 thousand.
Scenario 3: Fed doesn’t change policy, Ethereum ‘merger’ fails. In such a case, Hayes predicts a price equal to the recent low of about $1,000.
Scenario 4: there is a reversal of the Fed’s policy, with an unsuccessful “Merger” (the Ethereum network will continue to work in the same way as it does today). In this case, the price of ETH according to Hayes’ forecast will be $1.6 thousand.
The American businessman, who was sentenced to six months of house arrest in May for violating KYC and AML principles and violating the US Bank Secrecy Act, is known for his cryptocurrency price predictions. So, in January of this year, Hayes said that if bitcoin continues to decline and breaks through the $20,000 mark, this will have catastrophic consequences. And in July, an economist argued that the price of bitcoin could go up if the Fed intervenes to weaken the US dollar.
On August 8, the price of Ethereum fluctuates around $1.7 thousand, showing a daily increase of 5.1%. The market capitalization of the second cryptocurrency is $213 billion with a daily trading volume of $12.3 billion according to Coingecko.
Stagflation
Hayes does not take into account at least one, but the most important factor – the global recession, which no one denies, says Artem Deev, head of the analytical department at AMarkets. According to him, even the Fed, whose representatives have been calming the exchanges for a year and a half, arguing that inflation is of a short-term nature, is now changing its point of view.
It was the policy of the Fed with an immoderate injection of liquidity into the US economy that raised inflation to a record level of 9%, the expert believes. In his opinion, it is not possible to repay it with rates of 2.5-2.75%.
Meanwhile, all the factors are now being added for further price growth in the world – the cost of energy carriers will not decrease, Deev believes. He believes that the Fed will be forced to raise rates even more (now forecasted at least 4-4.5% by the end of this year), which will plunge the American and world economies into severe stagflation (inflation and unemployment rise while the economy and incomes shrink).
Accordingly, both the funds of ordinary investors and the opportunities of investment companies against such a background will be reduced, the portfolio will be reviewed, according to the analyst. He clarified that everyone will massively reduce investments in risky assets, primarily in cryptocurrencies.
“Even the successful launch of the new Ethereum platform will not lead to a strong growth of the coin. Yes, it is possible, it is “positive” after the launch, but it will be a short period, after which a long period of decline will begin again. The coin may well fall to around $1,000 by the end of the year,” the expert suggested.
He explained that institutional and ordinary investors are ready to invest in risky assets under two conditions: when there is stability in the economy, and investors have funds. Neither one nor the other will happen in the near future, at least as before, Deev is sure.
Prerequisites, but no guarantees
The former head of BitMEX may be overestimating a potential Fed turnaround, said Chen Limin, chief financial officer and head of trading at ICB Fund. He explained that the transition of monetary authorities “from fighting inflation to supporting growth”, mentioned by Hayes, if it takes place, is by no means in the foreseeable future.
According to the expert, at the moment, the futures curve, the money market, and polls of leading economists signal that the peak of the key rate increase will occur in December-January, and the beginning of policy easing will begin in March at best.
The specialist drew attention to the fact that the Fed is firmly convinced to adhere to the policy of reducing the balance sheet, and there is no talk of resuming the program for saturating the markets with liquidity, which has become a growth driver for the cryptocurrency market during the pandemic. Therefore, such an argument as a Fed reversal can be ignored in scenarios for now, says Limin.
The second factor, the Merger, also needs to be considered in the context of the overall market environment, Limin argues. Betting on the deflationary nature of ETH mentioned by Hayes and the mass adoption of the ecosystem due to throughput improvement after the Merger, he says, should be taken into account that it won’t work right away.
The expert explained that the deferred effect will be due to the negative revaluation of all assets due to the Fed’s “crusade” against inflation. The successful transition of Ethereum to a new consensus algorithm will create the prerequisites, but not guarantees, of a mandatory increase in the price of assets after the Merger, Limin is sure.
Taking into account the above, we can assume a different development of events, according to the financial director of ICB Fund. He believes that the Merger will happen approximately as planned (September 19) or will be postponed for a non-critical week or two – the development of the process in test networks allows us to count on such a development of events.
The Fed will raise the rate by 0.75% in September and the market will reorient its expectations regarding the peak of rates for March 2023, the expert suggested. He drew attention to the fact that in this case, the Ethereum rate is waiting for consolidation in the range of $1 thousand – $1.7 thousand closer to the lower limit.
“Only after that, by the end of the year, the Confluence factor will work, the prospects for the end of the monetary tightening cycle will loom, and more and more headlines about Web3 and Ethereum will begin to appear in the media. Then there will be more grounds for implementing the optimistic Hayes scenarios with the return of the Ethereum price to $3.5 thousand – $5 thousand,” the expert concluded.
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