Bitcoin (BTC) price and the broader crypto market corrected earlier this week, giving back a small portion of gains made in January, but it’s safe to say that more experienced traders expected some technical correction. .
The SEC’s February 9 enforcement against the Kraken exchange was unexpected and the regulator’s announcement that the staking-as-a-service program is unregulated securities. Crypto markets sold off on the news and given Kraken’s decision to shut down its staking services, traders worry that Coinbase will eventually be forced to do the same.
While this week’s events marked the beginning of a sharper than expected decline, the real question is whether the correction reflects a reversal of the bullish trend seen throughout January, or whether the “staking services are unregistered securities” news is a simple blip that Will traders be defied in the coming weeks?
According to analysts at Delphi Digital, crypto is set up for a “roller coaster ride in 2023”. Analysts Kevin Kelly and Jason Pagoulatos explain January’s price action as “recent increases in global liquidity” favoring risk assets, but both agree that macroeconomic headwinds will weigh negatively on markets until at least the third quarter of 2023. Will continue to make an impact.
Normalized % change YoY by major asset class. Source: Delphi Digital
Beyond this week’s negative news and its impact on crypto prices, a handful of metrics offer some insight into how the rest of the year may pan out for the crypto market.
DXY comes back to life
The US Dollar Index has rebounded from its recent lows, a point highlighted by Cointelegraph newsletter writer Big Smokey.
Big Smokey said in a recent post:
“December’s lower than expected CPI print and the upcoming February FOMC and interest rate hikes clearly provided the boost to investor sentiment needed to propel prices through a sticky zone for months. But, as shown below, BTC’s inverse correlation with the US Dollar Index (DXY) says it all. Lately, DXY has been losing ground, falling back from its September 2022 high of 114 to its current 101. As is customary, the DXY pulled back, sending the BTC price higher.
BTC and DXY Weekly Price Action. Source: TradingView
Looking at the DXY this week, anyone will note that the DXY rebounded from its low at 101 on January 30th and rose to a five-week high near 104. Like clockwork, BTC topped out at $24,200 and began a rollover as the DXY surged.
DXY. 1 week chart. Source: TradingView
According to JLabs analyst JJ the Janitor:
“How DXY fares after retesting the 50-, 100-, and 200-day MAs in the coming weeks will provide us with more insight into the market’s next move… If it closes above its 200-day MA (currently ~ 106.45), the asset markets will indeed turn bearish again, and we can expect the November lows to be threatened. However, should this DXY back-test fail, either now (at the 50-day) or later, we can take this as confirmation that we have entered a new macro environment. One where the strong dollar that terrorized us in 2022 is now an impotent beast.
Fed pivot takes longer than investors expect
For months retail and institutional traders have predicted an eventual pivot from the United States Federal Reserve on its interest rate hikes and quantitative tightening policies. Some interpret the shrinking size of recent and future rate hikes as confirmation of his prediction, but at the last post-Federal Open Market Committee (FOMC) presser, Powell hinted at the need for future rate hikes. Gave and spoke to David Rubenstein during an open interview at the Economic Club of Washington. Powell said:
“We think we will need to do more rate hikes,” according to Powell, mainly because “the labor market is exceptionally strong.”
According to Delphi Digital Analysis, market participants are “playing chicken with the Fed trying to pull off their bluff.” Analysts suggest the data shows the bond market is signaling that the Fed’s policy is too accommodative.
In general, equity and crypto markets have rallied when the FOMC decision on rate hikes aligns with market participants’ expectation and anyone who was following crypto markets in 2022 will remember that everyone and their Ma was waiting for Powell to pivot before going ultra long in large-cap cryptocurrencies.
From a technical analysis vantage point, BTC price was also expected to decline, especially after a 40%+ monthly rally in January, with a possible retest of underlying support in the $20,000 region.
Based on historical data and fractal analysis, Delphi Digital analysts suggest that there is room for further upside for BTC as “there is not a lot of supply for BTC in the $24K – $28K range” and an earlier Cointelegraph report on this Cast light on. The Significance of Bitcoin’s Recent Golden Cross.
While all of this is encouraging in the short term, the reality of some Consumer Price Index components remaining stagnant and Powell seeing the need for further hikes in interest rates due to labor market strength should be a reminder that crypto is not yet in bull market territory. Not there. , Interest rate increases increase operating and capital costs for businesses, and these increases always affect consumers. Another frequent and alarming development is the continuation of layoffs at big tech companies.
Banks and major US brokerages continue to lower their earnings estimates and Big Tech has a way of becoming the canary in the coal mine for equity markets. The high correlation between equity markets and bitcoin and related macroeconomic constraints suggest an expiration date on the crypto’s recent mini bull market. Investors would do well to keep this point in mind.
If the long-awaited “Fed pivot” remains elusive, some realities will emerge that are bound to have a strong impact on pricing in crypto and equity markets.
Connected: SEC Enforcement Against Kraken Opens the Door for Lido, Frax, and Rocket Pool
Looking Deeper Into 2023
Despite the bearish nature of the challenges listed above, Delphi Digital analysts issued a more positive outlook for the bottom half of 2023. According to his analysis:
“The need to expand liquidity will become more pressing as the year progresses. Cracks in the labor market will also become more pronounced, providing cover for the Fed to shift toward more accommodative policy. The reversal in global liquidity we cited late last year , which will act as support for risk assets in 2H 2023. The impact of global changes set a more optimistic outlook for 2024-2025 While doing so, liquidity on the financial markets lags anywhere from 6-18 months.
The views, opinions and opinions expressed here are those of the authors only and do not reflect or represent the views and opinions of Cointelegraph.