Bitcoin and Ethereum: Potential Pitfalls in the Ongoing Rallies

Bitcoin and Ethereum are currently the two biggest cryptocurrencies and recently, both of them have been experiencing strong upward trajectories in the cryptocurrency market. Since the last week of August, Ethereum has soared by more than 20% and Bitcoin too saw a rise on Coinbase to $12,086. If you consider the entirety of 2020 that has come to pass, Bitcoin has gained 65% and Ethereum has gained a whopping 261%. However, despite the ongoing rallies, experts believe that there are potential pitfalls for both cryptocurrencies.

Before we go on to talk about the pitfalls, it’s important to talk about why both cryptocurrencies witnessed such staggering growth in 2020.

COVID-19 and its impact on the US dollar

The primary reason for the never-before-seen growth of both Ethereum and Bitcoin can be attributed to the COVID-19 pandemic that still has a very firm grip on proceedings in the USA and its impact on the US dollar has been significant. As the USA is still the country with the highest caseload and also the highest number of deaths from the pandemic, the dollar is still reeling.

Statistics show that over the last few days of July, as the USA struggled with more and more coronavirus cases every day, the dollar kept going down and recorded a two-year low. The dollar didn’t fare much better in August, as its downward momentum continued. The U.S. dollar index, in five months from March, dropped by over 10% to 91.75 points from 102.99 points.

The dollar’s struggles didn’t do much to inspire confidence in traders and investors, who started looking at alternative assets like gold, Bitcoin, and Ethereum, significantly raising their respective values.

Ethereum’s meteoric rise is not just a result of the COVID-19 pandemic, but also of the boom experienced by decentralized finance (DeFi). As most DeFi networks have the Ethereum platform at their foundations, tokens like $SUSHI, $YAM, and $YFI experienced mammoth surges in their prices; 1,358%, 446%, and 107,761%, respectively.

Potential recovery of the US dollar

Despite the dollar’s significant slump, many experts believe that the stories being circulated are exaggerated and that the US dollar is still the world’s most dominant reserve currency. According to them, the renminbi and the euro lack stability for both economic and political reasons, which make them reserve currencies with significant shortcomings.

Financial analysts are foreseeing a recovery of the US dollar and when that does happen, the rallies that cryptocurrencies like Bitcoin and Ethereum are experiencing may hit a roadblock.

The volatility of Bitcoin

While the coronavirus pandemic combined with the US dollar’s slump has definitely contributed to the rise in the value of Bitcoin and Ethereum,, as changes may take place overnight. In the short-term, the opinions of financial analysts and experts are mixed regarding the fortunes of cryptocurrencies like Ethereum and Bitcoin. While some believe that it’s a good time to buy, several others believe it’s best for investors to wait out the financial storm that the coronavirus pandemic has inflicted on the world.

As fresh coronavirus infections are being reported across the globe, experts are predicting a second cryptocurrency slump (the first one came in March, when the dollar, Ethereum, and Bitcoin all went down). Even though the current trend is upward, very few actually believe that it’ll continue until the end of 2020 due to the volatile behavior that cryptocurrencies have shown in 2020.

BTC’s September performances have historically been poor as well and even though experts’ opinions are divided as to whether those poor September performances arose out of coincidence or not,. If Bitcoin does manage to break the cycle, it would be a remarkable achievement and also a feather in the cap for cryptocurrencies as a whole.

Conclusion or is there one?

The economic upheavals on a global scale that the COVID-19 pandemic has brought with it have resulted in markets that have seen constant twisting and turning and with the pandemic still prevailing, it’s hard to come to a conclusion as to what exactly the future of cryptocurrencies like Bitcoin and Ethereum would be like.

On one hand, there are optimistic suggestions from experts that predict Bitcoin’s growth to a whopping $50,000. On the other hand, some suggestions are not as optimistic and state that the growth of cryptocurrencies in a pandemic-influenced global economy is short-lived. Some others are firmly sitting on the fence and are refusing to make any predictions that influence investors to make rash decisions.

Ultimately, only time will tell whether the values of Bitcoin and Ethereum go up or down and in a volatile economic situation, the best that traders and investors can probably do is stall.

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