- Grayscale report highlights improved digital asset markets since 2022.
- Risk to crypto valuations lies in US economic “soft landing.”
- “If the economy stumbles or the Federal Reserve raises real rates further, the crypto recovery may pause over the near-term,” the report said.
The crypto industry is currently experiencing a boost from technological advancements and increasingly favorable legal and legislative factors. However, the biggest risk to crypto valuations lies in the macroeconomic outlook, particularly the possibility of a “soft landing” for the US economy.
In the latest report of Grayscale Investments, Zach Pandl, Managing Director of Research, emphasized the significant improvement in digital asset markets since late 2022. He pointed out that the recovery has been driven by favorable economic data of a mix of low inflation and steady growth, decreasing the perceived likelihood of a recession.
This positive sentiment in the market has led to an upswing in risk assets’ prices, including prominent cryptocurrencies like Bitcoin.
“If the US economy can achieve a soft landing, the rebound in crypto market capitalization can continue.”
The concept of a “soft landing” in the economic context refers to a scenario where the economy achieves a sustainable balance, reducing inflation without slipping into a recession. According to the report, this positive correlation between major token valuations and risky assets, coupled with various legislative tailwinds, could lead to continued growth in the crypto market.
However, the report cautions that a soft landing is not guaranteed, and there are potential risks on the horizon. “If the economy stumbles or the Federal Reserve raises real rates further, the crypto recovery may pause over the near-term,” the report said.
The report further touches on the specific performance of Bitcoin and Ethereum during July. While these major tokens experienced a slight decline in value, other risky assets extended their rally. It emphasizes that the price volatility was higher beyond the two largest tokens, and that altcoin’s dominance in the market increased.
According to the report, the fluctuations in token valuations were primarily attributed to regulatory developments, notably the court ruling on July 13 in the case of SEC v. Ripple Labs. The court deemed certain XRP sales as securities transactions, impacting XRP’s price and potentially influencing other tokens.
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