Many of the market’s top cryptocurrencies, including Bitcoin (BTC -1.78%) and Ethereum (ETH -1.92%), set record highs over the past year. That bullish stampede was driven by the newly approved spot price ETFs for Bitcoin and Ethereum, which brought in more institutional and retail investors; lower interest rates, which generated tailwinds for speculative investments; and the Trump administration’s more crypto-friendly policies. The devaluation of the U.S. dollar and other fiat currencies amplified those gains.
But as the crypto market heats up again, should investors be bracing for another crypto winter? The crypto market has already crashed three times over the past decade — in 2014, 2018, and 2022 — so it might be due for another downturn. Let’s weigh the bull and bear cases for the market to decide.
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Why the bulls expect cryptocurrencies to keep rising
The bulls expect crypto prices to keep rising as interest rates decline, fiat currencies soften, and “blue chip” cryptocurrencies like Bitcoin and Ether are adopted as “digital gold.” The big institutional inflows into their spot price ETFs over the past year support that bullish thesis.
As more institutional investors, companies, and countries accumulate Bitcoin, it should be more widely used for mainstream payments. Other cryptocurrencies, especially stablecoins, should benefit from that shift toward digitally native payments. More real-world assets could also be tokenized on those blockchains for secure transactions.
Proof of stake (PoS) blockchains like Ethereum — which support the smart contracts used to develop decentralized apps (dApps), non-fungible tokens (NFTs), and other crypto assets — should draw in more developers. The growth of that ecosystem should challenge centralized app stores while stabilizing the prices of their underlying cryptocurrencies. Proof of work (PoW) blockchains like Bitcoin, which need to be mined, will continue to be valued by their scarcity.
As that happens, financial regulators should provide clearer rules for trading and spending cryptocurrencies. That clarity could spark even bigger institutional investments. Protracted geopolitical conflicts and macro headwinds could also make them appealing safe-haven plays.
Lastly, history doesn’t necessarily have to repeat itself. The three crypto winters of the past decade were mainly caused by technical failures, which weeded out the weaker tokens and exchanges.
The collapse of Mt. Gox, the largest Bitcoin exchange at the time, triggered the 2014 crypto crash. The 2018 crash occurred after the initial coin offering (ICO) bubble burst and sparked a global regulatory crackdown. The 2022 crash should be blamed on both higher interest rates and several high-profile failures (Terra/LUNA, Three Arrows Capital, Celsius, and FTX) that tarnished the market’s reputation.
Today, the crypto market is dominated by stable exchanges like Coinbase (COIN -0.80%). The ICO market is now much more tightly regulated than it was in the past, and investors are generally less eager to buy hype-driven meme coins. That’s why Shiba Inu‘s (SHIB -0.34%) price declined more than 40% this year as Bitcoin and Ethereum rallied.
Therefore, interest rates are the only lasting headwind for the crypto market. The Federal Reserve hasn’t cut its benchmark rates for 2025, but most analysts expect at least one or two rate cuts by the end of the year. If that happens, the top cryptocurrencies — and the stock market — should soar even higher.
What’s the bearish case against cryptocurrencies?
The bears expect elevated interest rates, tougher regulations, and a backlash against energy-intensive mining methods (especially for Bitcoin and other PoW tokens) to chill the cryptocurrency market again. They also warn that a market crash could drive institutional investors away from the spot price ETFs for Bitcoin, Ether, and other cryptocurrencies.
Moreover, as developer-oriented PoS blockchains expand, the risk for a major security failure also increases. If that happens, developers could shy away from decentralized platforms like Ethereum — and that slowdown would reduce the value of its underlying tokens.
How worried should investors be?
I believe the bullish long-term case for cryptocurrencies is still stronger than the bearish one. Interest rates should decline, fiat currencies should weaken, and the blue-chip cryptocurrencies should become compelling alternatives to gold and other commodities. So even though the market will stay choppy, it probably won’t crash again over the next few years.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.
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