Bitcoin price correction overdue – Analysts outline why end of 2023 will be bullish

The Bitcoin (BTC) price and the broader crypto market corrected at the beginning of this week, giving back a small portion of the gains accrued in January, but it’s safe to say that the more experienced traders were expecting 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 staking-as-service programs are unregulated securities. The crypto market sold off on the news and given Kraken’s decision to shut down 100% of its staking services, traders are concerned that Coinbase will eventually be forced to do the same.

The real question is, does this week’s price action reflect a change in the trend of bullish momentum seen throughout January, or is the “bet services are unregistered securities” news a simple blip that traders will ignore in the coming weeks?

According to analysts at research firm Delphi Digital, crypto is set for a “roller coaster ride in 2023.” Analysts Kevin Kelly and Jason Pagoulatos explained that prices at the start of the year were driven by “recent increases in global liquidity” that are favorable to risk assets, but both agree that macroeconomic headwinds will continue to weigh on markets until at least the third quarter of 2023.

Beyond the negative news this week and its impact on crypto prices, there are a handful of metrics that offer some insight into how the rest of the year could be for the crypto market.

DXY comes back to life

The US Dollar Index has recovered from its recent lows, a point highlighted by Cointelegraph newsletter writer Big Smokey.

In a recent post, Big Smokey said:

“December’s below-expected CPI print and the upcoming FOMC and rate hike in February clearly provided the necessary sentiment for investors to push prices through what had been a sticky zone for several months.

But, as shown below, BTC’s inverse correlation with the US Dollar Index (DXY) says it all. Recently, DXY has been losing ground, retreating from a September 2022 peak of 114 to the current 101. As usual, as DXY retreated, BTC price increased.”

Taking a look at DXY this week, one will notice that DXY rebounded from the January 30 low of 101 and hit a 5-week high near 104. Like clockwork, BTC peaked at $24,200 and began to roll over as DXY increased.

According to JLabs analyst JJ the Janitor:

“How DXY performs after retesting the 50-, 100-, and 200-day MAs in the coming weeks will give us a lot of insight into the market’s next move … If it breaks through and holds above the 200- day’s MA (currently at ~106.45), asset markets will really turn bearish again and we can expect the November lows to be threatened.However, should this DXY retest fail, either now (at the 50-day) or later , we can take it as confirmation that we have entered a new macro environment. One where the strong dollar that terrorized us in 2022 is now a neutered beast.”

The Fed pivot is taking much longer than investors expect

For months, retail and institutional traders have been predicting a possible pivot from the US Federal Reserve to rate hikes and quantitative easing. Some seem to interpret the shrinking size of recent and future rate hikes as confirmation of their prophecy, but in the latest FOMC presser, Powell hinted at the need for future rate hikes and while speaking with David Rubenstein during an open-ended interview at the Economic Club of Washington, Powell said:

“We think we have to make further rate hikes,” primarily because, according to Powell, “The labor market is exceptionally strong.”

According to the Delphi Digital analysis, “market participants are playing chicken with the Fed trying to call their bluff,” and the analysts suggest data shows the bond market is signaling the Fed’s policy is too tight.

In general, stocks and crypto markets have rallied as FOMC rate hike decisions align with market participants’ decisions for anyone who breathed and followed the crypto markets in 2022 will remember that everyone and their mother was waiting for Powell to swing before it was extremely long in the grand scheme of things . cap cryptocurrencies.

From the vantage point of technical analysis, a retest of underlying support in the $20,000 zone is not a wild expectation, especially after a 40%+ monthly rally by BTC in January.

Based on historical data and fractal analysis, Delphi Digital analysts suggest there is room for further upside from BTC as “there is not much overhead for BTC in the $24K – $28K range” and earlier reporting by Cointelegraph highlighted the significance of Bitcoin’s recent golden cross .

While all of this is encouraging in the short term, the reality that certain CPI components remain sticky and Powell sees a need for further rate hikes due to the strength of the labor market should be a reminder that crypto is not yet in bull market territory. Interest rate increases increase operating and capital costs for businesses, and these increases always trickle down to the consumer. Another consistent and alarming development is the continuation of layoffs at major technology companies.

Banks and major US brokerages continue to spin down their earnings estimates, and big tech has a way of being the canary in the coal mine for stock markets, earnings and the number of layoffs taking place. The high correlation between the stock markets and Bitcoin, along with macroeconomic headwinds, suggests that there is an expiration date on crypto’s recent mini-bull market, and investors would do well to keep this in mind.

If the long awaited “Fed pivot” continues to remain elusive, certain realities will come to the fore and they are sure to have a stronger impact on pricing in the crypto and stock markets.

Related: SEC enforcement against Kraken opens doors for Lido, Frax and Rocket Pool

Looking deeper into 2023

Despite the more bearish nature of the challenges listed above, Delphi Digital analysts issued a more positive outlook for the bottom half of 2023. According to their analysis:

– The need for liquidity expansion will become more urgent as the year progresses. Cracks in the labor market will also become more apparent, which will give the Fed cover for a turn towards more accommodative policy. The reversal in Global Liquidity we cited at the end of last year will begin to accelerate in response to weaker growth prospects and concerns over increasing fragility in sovereign debt markets, acting as support for risk assets in 2H 2023. The effect of changes in global Liquidity in financial markets tends to lag between 6 and 18 months, which gives a more optimistic outlook for 2024-2025.

The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.