While it’s true that cryptocurrencies have been battered over the past three months by China’s regulatory crackdown, Elon Musk’s U-turn on bitcoin payments for cars sold by Tesla and, more generally, by the climate of uncertainty (see Delta variant) that continues to dampen investors’ bets on riskier assets, it’s also true that over the past two weeks, some digital currencies, such as Ethereum, have started to race back towards “pre-crisis” levels.
The second-largest cryptocurrency (and leading altcoin) by market capitalization is now trading at $2,765, up 54.8% from its low of $1,786 on July 20. This is a sustained pace, although the May highs of $4,080 are still out of reach. But what factors are reversing what was now a consolidated downtrend, and could finally push Ethereum above the psychological $3,000 threshold? Here are three of them.
1. London, the new Ethereum blockchain upgrade
Let’s start with yesterday’s upgrade of Ethereum’s native blockchain, London. This upgrade includes EIP-1559, a protocol that revolutionizes the calculation of transaction fees. Among other things, these fees will now be partially burned or removed from circulation, thereby reducing Ethereum’s supply and potentially inflating its price. In the long term, moreover, London’s hard fork could confer deflationary properties on the crypto, a long process but one that will prove “very beneficial” for investors, as EIP-1559 co-author Eric Conner revealed.
2. Google’s rules on cryptocurrency ads
A helping hand also comes from the outside. Google, which only last March decided to stop all products related (directly or indirectly) to cryptocurrencies, has retraced its steps: since August 3, companies that operate exchanges and offer wallets to store bitcoins&Co. (in the USA) can once again advertise their services, but with stricter rules. This reversal “is a sign that there is a general interest in cryptocurrencies, and that Google wants to be part of it”, said Justin d’Anethan of Eqonex. It’s worth pointing out, however, that Google has repeatedly changed its strategy on the cryptocurrency front: consequently, even the new “open” line may only be temporary.
3. Regulations invoked by the SEC
Finally, Bitcoin, Ethereum and other altcoins could, unexpectedly, be enlightened by regulation, i.e. the regulatory barrier which, until now – particularly in China – has been read more as a deterrent than an act of legitimization for the crypto-space. But things could change. Also because regulations – the latest to invoke them is Gary Gensler, number one at the SEC, echoing the Fed and the US Treasury – really do have the potential to give crypto-currencies that credibility that paves the way for institutional investors to get involved in the sector. The SEC could play a decisive role here. At the Aspen Security Forum, the SEC specifically asked Congress for greater powers to regulate cryptocurrencies in the US.
