Of Echo Bubbles

An Echo Bubble is not a concept familiar to traditional finance traders. In Crypto, the concept was popularised by the famous trader known as GCR. It's the idea that a mini-bubble 'echoes' a previous big bubble in a subsequent time period. In 2019, Crypto markets saw a short-lived echo bubble that followed the 2017 rally. Given how immense the 2021 market grew, many traders anticipated a significant Echo Bubble. Many expected an echo bubble in 2024, and the real market boom cycle in 2025. Few however anticipated that a Bitcoin All-Time-High would be reached in the process. Many experienced traders who still suffered from bear market blues ended up on the sidelines of this rally.

Many of these experienced traders continue to predict a pullback. Altcoins, including Ethereum, have still seen little momentum. Volumes remain well below 2021/22 levels. The consensus among crypto natives is that this is a 'boring' bull market so far. Yet, memecoins have continued to attract enormous market interest. Bitcoin displays surprising strength by continuing to push towards the 70k price level, even in the absence of new market catalysts. On the technical side, new narratives continue to build with restaking, zero-knowledge rollups, new Data Availability layers, and Smart Wallets all being touted as major new developments.

Taking a step back, the macro picture may hold some clues. This week, the Federal Reserve’s policy committee, known as the Federal Open Market Committee (FOMC), decided to keep interest rates steady at 5.25% to 5.50%. This decision comes amid continuous inflation concerns, but the latest figures show signs of easing. Market hopes for possible rate cuts later in the year are high. The dollar becomes more expensive with higher interest rates, which causes investors to shy away from risky assets such as Bitcoin and Ethereum. Lower rates on the other hand drive more capital towards risk-on assets. Bitcoin and Ethereum both soared by around 4% after the latest inflation report. Traditional markets have also responded to this announcement, with the S&P 500 index and Nasdaq Composite index both rising by around 1% and 2% respectively on the news.

Maybe markets as a whole see something that some experienced traders are currently missing: the setup is turning increasingly bullish. One way or another, the Federal Reserve will sooner or later lower rates. With elections looming, both major political parties in the US are becoming more open-minded about crypto. Particularly Republican candidate Donald Trump has stood out with much pro-crypto commentary over the last weeks. He is also the frontrunner for now. The Ethereum Spot ETF is also on track for a September launch. Clearly, the 'risks' seem to be leaning towards the up-side. If markets can look strong on the current low volumes, it will be interesting to see what can happen when things really start to move.