The price of Bitcoin (BTC) and the broader crypto market corrected earlier this week, reclaiming a small portion of the gains made in January, but it’s safe to say that more experienced traders were expecting some technical correction.
What was unexpected was the Feb. 9 SEC enforcement of the Kraken exchange and the regulator’s announcement that staking as a service programs are non-regulated securities. The crypto market sold off on the news and given Kraken’s decision to shut down 100% of its staking services, traders are worried that Coinbase will eventually be forced to do the same.
The real question is whether this week’s price action reflects the reversal of the bullish momentum seen throughout January, or whether the news that “betting services are non-registered securities” is simply a surge that traders will ignore in coming weeks?
According to analysts at analytics firm Delphi Digital, the cryptocurrency is set for a “rollercoaster ride in 2023.” Analysts Kevin Kelly and Jason Pagulatos attributed the price action at the beginning of the year to being driven by “recent growth in global liquidity” which is favorable for risky assets, but both agree that macroeconomic headwinds will continue to weigh on markets, at least until the third quarter. 2023.
Apart from this week’s negative news and its impact on cryptocurrency prices, there are several indicators that give some idea of what the rest of the year could be like for the cryptocurrency market.
DXY comes back to life
The US dollar index has rebounded from its recent lows, as Cryptooshala newsletter writer Big Smokey pointed out.
IN recent postBig Smokey said:
“The lower-than-expected December CPI release, as well as the upcoming February FOMC decision and interest rate hike, clearly provided the necessary lift in investor sentiment to push prices through what has been a sticky zone for several months.
But as shown below, the inverse correlation of BTC with the US dollar index (DXY) speaks for itself. DXY has been losing ground lately, pulling back from the September 2022 high of 114 to the current 101. As usual, when DXY pulled back, BTC price rose.”
Looking at DXY this week, DXY has rebounded from its Jan 30 low at 101 to hit a 5-week high near 104. Like clockwork, BTC topped out at $24,200 and started rising as DXY surged.
According to JLabs analyst JJ Dvornik:
“How the DXY performs after retesting the 50-, 100- and 200-day MAs in the coming weeks will give us a lot of information about the market’s next move… If it breaks and holds above the 200-day MA (currently at ~106 ,45), asset markets will indeed turn bearish again, and we can expect the November lows to be in jeopardy. However, if this DXY backtest fails now (in 50 days) or later, we can take that as confirmation that we have entered a new macro environment. Where the strong dollar that terrorized us in 2022 has now turned into a sterilized beast.”
Fed reversal takes longer than investors expect
For months, retail and institutional traders have been predicting a possible turnaround from the US Federal Reserve in terms of interest rate hikes and quantitative tightening policies. Some seem to interpret the scaling down of recent and future rate hikes as confirmation of their prophecy, but in a recent Fed press release, Powell hinted at the need for future rate hikes and, speaking with David Rubenstein during an open interview at the Economics Club of Washington, Powell said:
“We think we will need further rate hikes,” primarily because, according to Powell, “the job market is unusually strong.”
According to analysis by Delphi Digital, market participants are “playing with the Fed to try to catch their bluff” and analysts suggest the data shows that the bond market is signaling that the Fed’s policy is too tight.
As a general rule, stock and cryptocurrency markets have risen when the FOMC rate hike decisions coincide with those of market participants, as anyone who has breathed and followed the crypto markets in 2022 will remember that everyone and their mother waited for Powell’s turn before opening ultra-long positions in large markets. cryptocurrency cap.
From a technical analysis standpoint, a retest of the underlying support in the $20,000 zone is not a wild expectation, especially after BTC’s 40%+ month-on-month rally in January.
Based on historical data and fractal analysis, Delphi Digital analysts suggest that there is room for further growth versus BTC as “there is not much overhead for BTC in the $24K to $28K range” and earlier reports from Cryptooshala highlighted the importance of the recent golden cross of Bitcoin.
While all of this is reassuring in the short term, the reality that some components of the CPI remain sticky and Powell sees the need for further interest rate hikes due to labor market strength should serve as a reminder that crypto is not yet in bull market territory. . An increase in interest rates increases operating and capital costs for a business, and this increase always comes at the expense of the consumer. Another consistent and troubling development is the ongoing layoffs at major tech companies.
Banks and large US brokerages continue to underestimate their earnings estimates, and big tech companies could be canaries in the coal mine for stock markets, earnings, and layoff rates. The high correlation between stock markets and bitcoin, along with macroeconomic headwinds, suggests that the recent cryptocurrency mini bull market has reached an expiration date and investors should keep this in mind.
If the long-awaited “Fed turnaround” remains unattainable, certain realities will come to the fore and have a stronger impact on pricing in the crypto and equity markets.
SEC Enforcement Action Against Kraken Opens Doors For Lido, Frax And Rocket Pool
Looking deeper into 2023
Despite the more bearish nature of the issues listed above, Delphi Digital analysts have published a more positive outlook for the second half of 2023. According to their analysis:
“The need for more liquidity will become more pressing as the year progresses. Cracks in the labor market will also become more apparent, giving the Fed the cover to move towards more flexible policies. The global liquidity reversal we mentioned late last year will begin to accelerate in response to weaker growth prospects and concerns about growing volatility in sovereign debt markets, which will support risky assets in the second half of 2023. liquidity in financial markets tends to lag between 6 and 18 months, creating a more optimistic outlook for 2024-2025.”
The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cryptooshala.
Credit : cointelegraph.com
