Ever since Ripple emerged victorious in its lawsuit against the SEC, the crypto market witnessed a considerable surge, making investors optimistic about the potential of higher highs. However, this seemingly unstoppable bull run seems to have slowed, with most cryptos currently consolidating. This raises an important question – why are cryptos consolidating?
Lawyers for Sam Bankman-Fried, the former CEO of FTX, have asked a New York court to seal documents concerning his interviews with The New York Times, which could reveal details about his relationship with girlfriend and business partner Caroline Ellison. This comes amidst ongoing legal complications involving Bankman-Fried, including 12 criminal counts set to proceed in court in October.
In legislative news, the United States Senate passed the National Defense Authorization Act (NDAA) worth $886 billion, which includes an amendment focusing on cryptocurrency regulation. The NDAA sets federal funding utilization guidelines for the country’s defense department. The crypto-related amendment requires the establishment of examination standards for cryptocurrencies, aims to ensure compliance with sanctions and anti-money laundering laws, and calls for a study from the U.S. Treasury Department to mitigate anonymous crypto transactions. Additionally, Grayscale Investments is encouraging the Securities and Exchange Commission to approve all proposed spot Bitcoin ETFs simultaneously to avoid giving any one player an unfair advantage.
Crypto Performance in the Past Week
Over the past week, the crypto markets have largely seen consolidation, with most cryptocurrencies trading within a tight range. Bitcoin, the crypto bellwether, is currently consolidating around the strong resistance level of 30K. Similarly, Ethereum is also displaying a similar trend around the 2K mark.
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However, Dogecoin, following Elon Musk’s tweet, has seen a substantial increase in its price by over 10%. This led to a ripple effect on other meme tokens as well, with many of them witnessing a rise in their prices.
Why are Cryptos Consolidating?
Crypto markets, like any other financial market, go through cycles of bull and bear markets, interspersed with periods of consolidation. There are three main reasons why cryptos consolidate:
- Profit-taking: After a significant price rally, traders and investors often take profits, leading to a sell-off that counterbalances the prior bullish momentum. This results in the price moving sideways, i.e., consolidation.
- Uncertainty: Market uncertainty can lead to consolidation. When traders are unsure about future price direction, they may hold off on making significant moves, leading to lower trading volume and price stagnation.
- Re-accumulation: Often, consolidation is a phase where smart money re-accumulates their positions. Investors use this period to buy at lower prices before the next leg of the uptrend.
What Will Happen After the Crypto Consolidation?
In financial markets, consolidation phases are often followed by a significant price movement. After extended consolidation phases, especially following a strong bull run, cryptos often enter another bull market phase. This cycle is due to the renewed interest of investors who take advantage of the relatively stable prices during the consolidation phase to reaccumulate their positions.