Bitcoin (BTC) price and more crypto market corrected at the beginning of this week, giving back a small part of the gains accrued in January, but it is safe to say that more experienced traders expected some sort of technical correction.
What was unexpected was the SEC’s enforcement of the Kraken exchange on February 9 and the regulator’s announcement that the staking-as-service program is an unregulated securities. The crypto market sold off on the news and given Kraken’s decision to shut down 100% of its staking service, traders are worried that Coinbase will be forced to do the same.
The real question is, does this week’s prices reflect a reversal in the bullish momentum trend seen throughout January, or is “staking services as unlisted securities” simple news that traders will pay attention to in the coming weeks?
According to analysts at analytics firm Delphi Digital, crypto is set for a “roller coaster ride in 2023.” Analysts Kevin Kelly and Jason Pagoulatos explained the beginning of the price action of the year as supported by the “new increase in global liquidity” which is favorable for risk assets, but both agree that the macroeconomic headwinds will continue to have a negative impact on the market until at least the third quarter. from 2023.
Beyond this week’s negative news and its impact on crypto prices, there are a few metrics that provide some insight into how the rest of the year could be for the crypto market.
DXY is back on
The US Dollar Index has recovered, a point highlighted by Cointelegraph newsletter writer Big Smokey.
In a recent post, Big Smokey said:
“The December CPI print below expectations and the upcoming February FOMC and interest rate hike clearly provided the boost in investor sentiment needed to push prices through what has been a sticky zone for months.
However, as shown below, BTC’s inverse correlation with the US dollar index (DXY) says it all. Recently, DXY has lost ground, retreating from its September 2022 high of 114 to the current 101. As usual, when DXY retreats, the price of BTC rises.
Taking a look at DXY this week, one will note that DXY rebounded from the January 30 low at 101 and reached a 5-week high near 104. Like clockwork, BTC topped out at $24,200 and began to rollover as DXY surged.
According to JLabs analyst JJ the Janitor:
“How DXY rates after retesting the 50-, 100-, and 200-day MAs in the coming week will give us a lot of insight into the next market move… 106.45), the asset market will indeed turn bearish again, and we can expect- going down in November will be threatened. However, if this DXY retracement test fails, now (in 50 days) or later, we can take it as confirmation that we have entered a new macro environment. One of the strong dollars that will scare us in 2022 now it’s an unneutered animal.
The Fed pivot took longer than investors expected
For months, retail and institutional traders have been bracing for the final pivot from the US Federal Reserve on interest rate hikes and quantitative easing policies. Some seem to interpret the shrinking size of the new, and future rate hikes as a confirmation of the prophecy, but in the last FOMC presser, Powell hinted at the need for future rate increases and when he spoke to David Rubenstein during an open interview in Economy. Washington Club, Powell said:
“We think we should raise rates more,” especially because according to Powell, “The labor market is very strong.”
According to the analysis of Delphi Digital, market participants who “play chicken with the Fed trying to call their bluff” and analysts suggest that the data shows the bond market signal that the Fed’s policy is very firm.
In general, equities and the crypto market have rallied when the FOMC’s decision on rate hikes is in line with market participants for anyone who is breathing and following the crypto market in 2022 will remember that everyone and their mother is waiting for Powell’s pivot before it becomes too long. cover cryptocurrencies.
From a technical analysis point of view, a retest of the fundamental support in the $20,000 zone is not wildly expected, especially after the 40%+ monthly rally of BTC in January.
Based on historical data and fractal analysis, Delphi Digital analysts suggest that there is room for further progress from BTC because “there is not much overhead supply for BTC in the range of $24K – $28K” and a previous report from Cointelegraph highlights the importance of Bitcoin’s new golden cross.
While this is all encouraging in the short term, the fact that certain CPI components remain sticky and Powell sees the need for more interest rate hikes due to the strength of the labor market should be a reminder that crypto is not yet in bull market territory. . Rising interest rates increase operational and capital costs for businesses and these increases inevitably trickle down to consumers. Another consistent and alarming development is the steady stream of layoffs at large tech companies.
Major US banks and brokerages continue to cut their earnings estimates and big tech has a way of being the canary in the coal mine for equity markets, earnings and layoff rates. The high correlation between the equity market and Bitcoin, as well as regarding macroeconomic barriers suggests that there is an expiration date on the new crypto mini bull market and investors would do well to keep this in mind.
If the long-awaited “Fed pivot” continues to remain elusive, certain facts will come to the fore and will certainly have a stronger impact on prices in the crypto and equity markets.
related: The SEC’s enforcement of Kraken opens the door for Lido, Frax and Rocket Pool
Looking deeper into 2023
Despite the more bearish challenges above, Delphi Digital analysts issued a more positive outlook for the lower half of 2023. According to their analysis:
“The need for liquidity expansion will increase during the year. Cracks in the labor market will also become more apparent, which will give the Fed cover for a change to a more accommodative policy. The reversal in Global Liquidity that we mentioned at the end of last year will started quickly in response to weaker growth prospects and concerns about the weakness of the sovereign debt market, which is a support for risk assets in 2H 2023. The impact of changes in global liquidity in financial markets tends to lag anywhere from 6-18 months, making a more optimistic outlook for 2024-2025.
The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.