Trading for around $3000 as of this writing, can Ethereum (CCC:ETH-USD) continue to make its way back above $4,000? It depends. With the launch of its upgrades earlier this month, enthusiasm for Ether (what the coin itself is called) has returned. This could be enough to send it soaring back to its high-water mark.
Even so, increased talk of regulation of crypto by the U.S. Government could start to have a greater impact on prices across-the-board. In the long run, regulation could make crypto more valuable. But on its onset, new rules could cause some volatility.
To top it all off, it’s hard to tell how crypto will react if stocks start to correct. It’s questionable whether investors will see it as a safe harbor, or dump it in tandem with equities.
There’s plenty in play that could cut the recent turbo-charged ETH rebound short. That’s not to say the “party’s over” for this or any other crypto. But if you’re looking for exposure, you may be better off cautiously entering it, rather than diving in with full force.
Renewed Enthusiasm Points to a Return to $4,000+ for Ethereum
ETH prices may have started to move higher late last month, in line with Bitcoin (CCC:BTC-USD) and the other major cryptos. Yet it’s been the launch of the London Hard Fork that’s helped to extend its rally. Going live on Aug 5, this upgrade added many improvements to the use of this blockchain and its native coin. Primarily, improvements to scalability and transaction fees.
The Hard Fork also speeds up the timeline for “Ethereum 2.0.” That is, a full move from proof of work to proof of stake. All together, these enhancements will enable this blockchain, currently the one most widely used in DeFi (decentralized finance), to stave off the many DeFi-friendly blockchains, like Cardano (CCC:ADA-USD) and Polygon (CCC:MATIC-USD) some decentralized app (dApp) developers have flocked to lately.
In all, these enhancements, coupled with the renewed interest in crypto, may be enough to extend its current rally. A move back above $4,000 per coin may be in the cards. But before you decide now’s the time to go “all in” on Ethereum, keep two things in mind.
First, increased regulation of this asset class appears to be picking up in the United States. It’s unclear whether this market will continue to wave it off as “no big deal.” Second, possible stock market volatility may or may not have an impact on crypto prices as well.
Why Increased Regulations Could Cut its Rebound Short
Is the crypto market correct in not worrying about the specter of regulatory scrutiny? Or, is this factor that could start applying pressure on digital asset prices at-large? A possible U.S. crypto crackdown started to emerge earlier this month, when lawmakers in the U.S. Congress decided to add crypto tax reporting requirements into the much-discussed infrastructure bill.
In a nutshell, the bill included provisions calling for “brokers” (which by the bill’s definition included parties such as miners) to provide tax information to the Internal Revenue Service (IRS). Fortunately, the U.S. Treasury has come out and said it’ll clarify the “broker” definition. Yet it’s clear that many of the anonymity advantages of crypto could be coming to an end.
It’s not just the taxman that wants to rein in crypto. Other changes proposed by lawmakers and senior government officials are also in the works. So, how will this affect the price of Bitcoin, Ethereum, et al? Some have made the case that these increased regulations are good for crypto.
Why? Regulation will add legitimacy to this “wild west” asset class, encouraging more institutional investment. This, in turn, could lead to higher prices. Long-term, this could end up being the case. Yet that may not prevent markets from getting skittish, if sweeping regulations get signed into law within the next few months. This may have an impact on ETH’s latest rally.
Approach Carefully for Now When it Comes to ETH
Along with more regulation, something else could cut this leading altcoin’s recovery short: stock market volatility. Yes, many times this year we’ve seen stocks and crypto move in different directions.
But that doesn’t rule out the risk this alternative asset class starts moving lower, in tandem with stocks. How? If the market sells off, following news of the Federal Reserve planning to scale back its easy-money policies sooner-than-expected. Investors may decide that crypto too is a “risk on” asset, like stocks, to get out of in the event markets go into “risk off” mode.
Neither increased regulation or market volatility may affect the long-term prospects of Ethereum. But as these factors risk cutting its recent rally short, “tread carefully” may be the way to go for now.
On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.