BTC and the crypto market will continue to face significant headwinds, but analysts explain why the third and fourth quarters of 2023 might be profitable for Bitcoin.
Bitcoin and the broader crypto market dropped at the start of this week, giving up a tiny percentage of the gains made in January, but it’s safe to say that more experienced traders anticipated some form of technical correction.
The SEC’s enforcement against Kraken exchange on February 9 was surprising, as was the regulator’s decision that staking-as-service programs are unregulated securities. The cryptocurrency market fell on the news, and given Kraken’s decision to discontinue all staking services, traders are fearful that Coinbase may be compelled to do the same.
While this week’s events triggered sharper-than-expected downside, the real question is whether the correction reflects a shift in the bullish momentum seen throughout January, or whether the “staking services are unregistered securities” news is just a blip that traders will ignore in the coming weeks.
According to Delphi Digital experts, cryptocurrency is due for a “roller coaster ride in 2023.” Analysts Kevin Kelly and Jason Pagoulatos attributed the year’s early price action to “recent gains in global liquidity,” which are beneficial to risk assets, but both concur that macroeconomic headwinds will continue to weigh on markets until at least the third quarter of 2023.
Aside from this week’s unfavorable news and its influence on crypto prices, there are a few variables that give some insight into how the crypto market could perform the remainder of the year.
The US Dollar index has recovered from its recent lows, as Cointelegraph newsletter author Big Smokey has noted.
“December’s below-expected CPI figure, as well as the approaching February FOMC and interest rate rise obviously gave the required market confidence lift to drive prices through what had been a sticky zone for months,” Big Smokey said in a recent piece. However, as seen below, Bitcoin’s inverse connection with the US dollar index (DXY) tells it all. DXY has recently been losing momentum, falling from a high of 114 in September 2022 to the present level of 101. As is customary, as DXY retreated, the price of BTC increased.”
Looking at DXY this week, one can see that it bounced from its Jan. 30 low of 101 to a 5 week high of 104. As DXY rose, BTC maxed out at $24,200 and began to rollover.
“How DXY performs after retesting the 50-, 100-, and 200-day MAs in the next weeks will offer us with significant insight into the market’s next move,” says JLabs analyst JJ the Janitor.
If it breaks through and holds above its 200-day moving average (now at 106.45), asset markets will turn negative again, and November’s lows may be threatened. However, if this DXY back-test fails now (at the 50-day) or later, we can interpret it as indication that we have entered a new macro environment. One in which the powerful dollar that scared us in 2022 has been tamed.”
For months, individual and institutional traders have predicted that the US Federal Reserve will reverse its interest rate rise and quantitative tightening measures. Some appear to interpret the shrinking size of recent and future rate hikes as confirmation of their prophecy, but Powell hinted at the need for future rate hikes in the last post-FOMC presser, and while speaking to David Rubenstein during an open interview at the Economic Club of Washington, Powell said: “We think we are going to need to do further rate increases,” primarily because the labor market is “extraordinarily strong.”
According to Delphi Digital research, market players are “playing chicken with the Fed, attempting to call their bluff,” and data reveals that the bond market is indicating that the Fed’s policy is too strong.
In general, equities and crypto markets have rallied when FOMC rate hike decisions align with market participants’ expectations, and anyone who followed crypto markets in 2022 will recall that everyone and their mother was waiting for Powell to pivot before going ultra long on large cap cryptocurrencies.
From a technical standpoint, BTC’s price retreat was also predicted, and a retest of fundamental support around the $20,000 zone is not out of the question, especially following a 40%+ monthly rise in January.
Delphi Digital analysts believe there is room for further upside in BTC based on historical data and fractal analysis because “there isn’t a lot of overhead supply for BTC in the $24K – $28K range,” and earlier reporting from Cointelegraph highlighted the significance of Bitcoin’s recent golden cross.
While this is all promising in the near term, the fact that key CPI components remain sticky and Powell sees the necessity for more interest rate rises owing to the labor market’s strength should serve as a warning that crypto is not yet in bull market territory. Interest rate rises raise firms’ operating and capital costs, which always trickle down to consumers. Another worrying trend is the continued layoffs at large technology businesses.
Banks and large brokerages in the United States continue to lower their profit forecasts, and big tech has a habit of being the canary in the coal mine for equity markets. The significant link between stock markets and Bitcoin, as well as worrisome macroeconomic challenges, signal that crypto’s recent little bull market has an expiration date, and investors would be well to bear this in mind.
If the long-awaited “Fed pivot” remains elusive, certain facts will emerge, and they will have a greater influence on pricing in the crypto and stocks markets.
Despite the more pessimistic nature of the aforementioned difficulties, Delphi Digital analysts offered a more optimistic view for the second half of 2023. “The need for liquidity expansion will grow more severe as the year passes,” they predict. Labor-market cracks will also become more visible, providing the Fed with cover for a shift toward more lenient policy. The reversal in Global Liquidity that we predicted at the end of last year would begin to accelerate in reaction to a worse GDP forecast and increased worries about the fragility of sovereign debt markets, providing support for risk assets in the second half of 2023. The impact of improvements in global liquidity on financial markets typically takes 6-18 months, implying a more bullish forecast for 2024-2025.”