Crypto causality: Analyzing the scenarios that could bring the 2021 bull market back to life

Those heady 2021 days punctuated by multiple bull runs seem like a lifetime ago. It’s hard to remember the euphoria of Bitcoin’s recent rallies following a 2022 awash with harsh market corrections and the beginning of a difficult crypto winter. Today, however, sentiment towards the cryptocurrency landscape appears to be changing. Although there’s a long way to go, could we soon be recapturing the essence of 2021’s euphoric bull market? 

Okay, to say there’s a ‘long way to go’ is something of an understatement. Many cryptocurrencies have tumbled in value since their 2021 highs. Today, Bitcoin sits just under 60% adrift from its November 10th 2021 all-time high of $69,044.77. The highly popularized meme token Dogecoin is closer to 90% below its May 8th high in 2021. 

As CoinMarketCap data shows, the cryptocurrency market cap as a whole has tumbled from a peak of around $2.97 trillion in November 2021 to less than $1 trillion by June 2022. 

Such a significant collapse shows the size of the challenge on hand for the market to recover when reviving those former glories. 

So, what needs to happen in order for the 2021 cryptocurrency bull market to kick back into life? Let’s explore the scenarios that need to take place in order to return to former glories:

What Makes a Bull Run?

Although the cryptocurrency ecosystem is highly influenced by market sentiment, there are usually a number of factors that need to be in place before a bull run can begin, these can include: 

• Demand and Supply: This equates to the interest of investors, and trading patterns can help to impact the overall demand for cryptocurrencies, leading to fluctuations in price. 

• Market Sentiment: If the news surrounding crypto is positive, it’s likely that more investors will be motivated to buy and cause the price of assets to increase. 

• Institutional Interest: The mainstream adoption of crypto by major institutions can help to open assets up to a far wider audience. 

• Wider Economic and Geopolitical Factors: Economic headwinds and global politics can also heavily impact the behavior of investors and their ability to use crypto.

• Asset Scarcity: In uncertain times, it’s not unusual to see investors look to higher-volatility, higher-return assets like crypto in a move that causes prices to pump due to their fixed scarcity. 

• Favorable Inflation and Interest Rates: Lower inflation and interest rates generally mean that investors will benefit from more liquidity to invest in riskier assets. 

While these factors can all play a role in creating a cryptocurrency bull run, there are countless other reasons behind how a bull run can work. So how can these considerations combine in a scenario that drives enough positive sentiment to create a bull run similar to that of 2021? 

Innovation-driven economic sustainability

When facing the prospect of a ‘crypto-winter’, a sustained period of low or negative growth across the cryptocurrency landscape, Ethereum co-founder Vitalik Buterin claimed that it could actually bring some long-term benefits for the ecosystem. 

"The people who are deep into crypto, and especially building things, a lot of them welcome a bear market," Buterin noted. 

Buterin believes that crypto winters are a time for weaker cryptocurrency projects to be replaced by their more sustainable counterparts. "The winters are the time when a lot of those applications fall away, and you can see which projects are actually long-term sustainable, like both in their models and in their teams and their people," he explained.

With this in mind, bull markets can be a reasonable expectation at the conclusion of crypto winter, which is widely acknowledged to have begun in late 2021/early 2022. 

While this will mean that startup founders will no longer be able to rely on large pools of investor liquidity, it provides them with an opportunity to reward early users with more protocol-generated tokens to subsidize annual yields of over 100% or even 1,000% on invested capital. 

Decentralized finance, or DeFi, was a driving force behind crypto’s 2021 outperformance, and protocol tokens will continue to play a significant role in driving sustainable finance today. However, these tokens will also be under more scrutiny from investors, who will question whether a protocol is capable of generating enough fees to fund its treasury and retain more value than it’s distributing to end-users. 

This, however, does mean that Web 3.0 projects will need to consider unit economics, and matters of long-term viability. 

As many major cryptocurrency projects failed to survive crypto winter it provided more protocols with the opportunity to learn and grow into the space left behind. 

While FTX can be listed among 2022’s major casualties, crypto trading terminals like SKARB are well-positioned to grow in a more long-term sustainable manner. 

Significantly, SKARB is a unique cryptocurrency trading terminal that offers intuitive and highly-customizable digital asset tools that can be optimized for institutional use. 

The SKARB terminal operates as an unified trading infrastructure that empowers institutions to access a vast array of exchanges and investing tools all within a single platform, helping investors to access deeper pools of liquidity while allowing them to carefully monitor, manage, and audit their counterparty risk.

SKARB provides investors with a path to optimal execution, and the data needed to manage counterparty risk.  This empowers users in their battle for exchange liquidity while helping them to trade and diversify away from significant counterparty risk.

Because all users can connect to multiple exchanges through API within SKARB’s UX, institutions are better prepared for events like that of FTX, and can effectively audit themselves within the platform’s unified and encrypted records. Through SKARB’s extensive suite of analytics and available data, institutions can run comprehensive analyses alongside their unified trades for better accountability.

It’s through this more unified approach to crypto that institutions can embrace a more sustainable means of building into the landscape. 

The terminal itself is entirely app-based, which means that institutions can benefit from a far greater speed of execution and better levels of accessibility. 

The easing of economic headwinds

The recent fall of Silicon Valley Bank in the United States isn’t an isolated incident, and many regional banks have been struggling to deal with major losses on US government bond investments with the Fed having to step in to calm the choppy waters. 

Due to rising interest rates having a significant impact on the value of bonds, we may see the Fed opt to slow interest rate hikes. This has been evidenced by the recent +0.25% increase instead of the expected 0.50% increase. 

Should interest rates in the US continue to slow or revert to levels similar to that of 2021, it’s likely to bring far more liquidity for investors to spend on more risky investments like cryptocurrencies–bringing greater optimism for a return to 2021’s bull markets. 

Remembering cryptocurrency cycles

Crucially, 2023 sees the cryptocurrency ecosystem move closer to the upcoming Bitcoin halving event. Bitcoin, the world’s most famous and most dominant cryptocurrency, is pre-programmed to undergo halving events on an approximate four-year basis. With previous halvings like that of 2016 and 2020 paving the way for a major bull run in the months that follow, we’re likely to see more investor optimism arrive in anticipation of a similar cycle. 

When a Bitcoin halving event takes place, it automatically raises the scarcity of the cryptocurrency by halving the volume of BTC awarded to miners. In 2024, the amount of Bitcoin awarded to miners will halve from 6.25 BTC to 3.125 BTC, instantly making the asset more scarce. 

The anticipation of this event could be one of the leading causes of market optimism towards Bitcoin and the wider cryptocurrency landscape today, helping the market to already begin its recovery from 2022’s lows. 

Unpredictability still reigns supreme

Investors should always remain vigilant in the face of market movements, however. Scenarios that have sparked previous cryptocurrency rallies are never guaranteed to behave in the same way twice. With this in mind, it’s always worth doing your own research and making calculated risks when it comes to building a portfolio. 

In an ecosystem as volatile as crypto, it’s always worth expecting the unexpected. Usually, a surprising outcome is more likely to be on the cards. 

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