Digital currencies put on a relatively weak performance in September. In total, Bitcoin, Ethereum, and Ripple prices dropped by ~4%, ~6%, and 8%, respectively. But it wasn’t only cryptos. Gold and silver fell by ~4% and ~16%, respectively and the S&P 500 and Dow Jones also disappointed during the month.
Why digital currencies lagged in September
There were two main reasons why digital currencies declined in September. First, it was because of the overall weakness of the financial market. As mentioned above, main global assets also declined in September.
That decline was largely because of reports of a second wave of covid-19 in some countries like the United Kingdom and Spain. Also, the rising political temperatures in the United States and the geopolitical tensions between the United States and China helped put stocks in defensive mode. Most importantly, reports that Softbank was responsible for the rally in tech stocks pushed some investors to exit their positions.
Second, digital currencies declined because of the stronger US dollar. After months of falling, the dollar index managed to rise by about 2% in September. That was because of renewed interest in the currency as the risks mentioned above rose. A stronger dollar tends to affect the price of dollar-dominated assets like cryptos and precious metals.
Separately, Ethereum prices declined because of renewed questions about the Decentralised Finance (DeFi). This is among the fastest-growing industries in the world that has accumulated more than $11 billion in assets. Most DeFi programs are built using the Ethereum protocol. As such, the price dropped as some analysts started to equate the industry to the Initial Coin Offering (ICO) bubble.
At the same time, Ethereum developers continued testing the mainnet release scheduled for the coming months. Still, some analysts warn that the development that will transition the network from proof-of-work (POW) to proof-of-stake (POS); is not yet ready.
Outlook for October
While digital currencies dropped in September, they received some support from the Federal Reserve and congress. In September, Jerome Powell committed that the Fed would leave interest rates low for at least three more years. In theory, this policy is good for cryptocurrencies because it weakens the dollar and boosts inflation. To most cryptocurrency fans, digital currencies are hedges against inflation.
Second, digital currencies received support from congress, which failed to pass a stimulus package. Without stimulus, some analysts, including Fed officials believe that US growth will start to decline. Data released in September showed that retail sales, home sales, and the services sector started to slow in August when the enhanced jobless benefits increased. As such, a deteriorating American economy without support from congress will leave the Fed as the only game in town.
So, in October, we will continue to focus on the strength of the US dollar, talks on stimulus in congress, and the Federal Reserve. Also, we will continue to focus on any developments about the Ethereum 2.0 upgrade. Most importantly, crypto enthusiasts will focus on security issues. This is after a major hack happened in Singapore that led to disappearance of digital currencies worth more than $150 million.
Key Cryptocurrency Events To Watch
everal key events to watch this month will be the Los Angeles blockchain summit on October 7, CoinDesk Invest on October 22, and World Blockchain Forum on October 31. Most events will happen online because of social distancing restrictions.
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