Bitcoin prices and the broader cryptocurrency market corrected earlier this week, recouping a small portion of the gains accumulated in January. However, more experienced traders have been expecting some technical corrections.
In a surprise move, the SEC took enforcement action against the Kraken exchange on Feb. 9, with the regulator declaring the staking-as-a-service program an unregulated security. The cryptocurrency market sold off following the news, as Kraken decided to stop 100% of its staking services. As a result, traders worry that Coinbase will eventually be forced to do the same.
While this week’s events created a stronger-than-expected downtrend, the real question is whether the correction will change the direction of the upward momentum throughout January, or the “staking services are securities” news. Will the “easy push” as a trader skimp over the next few weeks?
According to analysts at Delphi Digital, the cryptocurrency will be on a “roller coaster ride in 2023.” Analysts Kevin Kelly and Jason Pagoulatos explained the price action at the start of the year as a “recent increase in global liquidity” favoring risk assets, but both agreed that economic distress and the macro economy will continue to have a negative impact on the market, at least until 2023. quarter.
the normalized percentage change of cYear-to-date major asset classes | Source: Delphi Digital
Aside from this week’s negative headlines and impact on cryptocurrency prices, there are several indicators that can give us insight into how the crypto market will perform over the rest of the year.
DXY is alive again
The U.S. dollar index (DXY) recovered from recent lows. In a post, analyst Big Smokey said:
“December’s CPI was lower than expected, the upcoming February FOMC and a clear interest rate hike provided investor sentiment with the momentum needed to push prices through difficult multi-month territory. However, as the chart below shows, BTC vs. DXY The negative correlation says it all. Recently, DXY lost ground, falling from a high of 114 in September 2022 to the current level of 101. As usual, when DXY falls, the price of BTC rises.”
Weekly BTC and DXY price action | Source: TradingView
Looking at this week’s DXY chart, the index bounced off a low of 101 on Jan. 30 and hit a five-week high near 104. Meanwhile, BTC peaked at $24,200 and started to change direction, at which point DXY surged higher.
DXY chart 1 week | Source: TradingView
according to analysts JJ Janitor Via JLabs:
“After retesting the 50, 100, and 200-day moving averages in the coming weeks, DXY action should tell us a lot about where the market is headed next…if it breaks and holds the 200-day moving average (currently around 106.45), the asset market will turn bearish again, and the November low will be threatened. However, if the retest fails now (50-day moving average) or later, we can consider this a confirmation of entering a new macro environment. This is what has been The strong dollar that terrified us in 2022 is now a monster to kill.”
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Fed takes a long time change attitude exceed investor expectations
Retail and institutional traders have been predicting for months that the Fed would eventually change its stance on rate hikes and quantitative tightening. Some have even interpreted the scaling back of recent and future rate hikes as confirmation of their predictions. However, in the latest press conference following the FOMC meeting, Powell hinted at the need for future rate hikes, saying in a discussion with David Rubenstein at the Economic Club of Washington:
“We think we’re going to need to raise rates further. The labor market is very strong.”
According to an analysis by Delphi Digital, market participants are “fighting the Fed as it tries to flip its cards,” with analysts saying data from the bond market are signaling to U.S. policy that the Fed is too hawkish.
Overall, stock and cryptocurrency markets rallied as the FOMC rate hike decision was in line with market participants’ expectations. Anyone paying attention to the cryptocurrency market in 2022 will remember that people are waiting for Powell to “turn the wheel” before placing ultra-long orders on large-cap coins.
From a technical analysis point of view, a BTC price pullback is also expected, and a retest of fundamental support in the $20,000 area is not a myth, especially after a streak of more than 40% gains in January.
Based on historical data and fractal analysis (a pattern that is now recurring), Delphi Digital analysts believe BTC is likely to rise further as “there isn’t much supply in that range. en $24,000 – $28,000.” Meanwhile, previous reports also highlighted The significance of the near-term Bitcoin golden cross.
While all of this is encouraging in the short term, some CPI components remain worrisome, and Powell thinks the need for further rate hikes due to a strong labor market should serve as a reminder. Cryptocurrencies have not yet entered bull market territory. Raising interest rates increases a business’ operating and capital costs, and these increases always impact users. Another ongoing and worrying development is the ongoing trend of layoffs at large tech companies.
Major U.S. banks and brokerages continued to lower their profit forecasts. Meanwhile, big tech companies are getting warning signs from the stock market. The high correlation between the stock market and Bitcoin and the associated macroeconomic hurdles suggest that the latest bull run is about to expire, something investors should keep in mind.
If the long-awaited “Fed change of mind” remains elusive, certain realities will emerge and they will certainly have a greater impact on crypto market valuations, just like the stock market.
Looking deeper into 2023
Despite the more negative nature of the aforementioned challenges, Delphi digital analysts have a more optimistic outlook for the second half of 2023. According to their analysis:
“The need to expand liquidity during the year will become more urgent. Cracks in the labor market will also become more pronounced, causing the Fed to shift to accommodative policy. The global liquidity reversal we mentioned late last year will start to accelerate due to growth prospects Weakening economic growth and concerns about growing fragilities in government debt markets should support risk assets in the second half of 2023. Liquidity changes in financial markets tend to slow from 6-18 months onwards, leading to 2024-2025 years to create a more optimistic outlook”.
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As reported by Cointelegraph