Bitcoin price could fall by half, says analyst, before testing record highs

Cryptocurrencies jumped into the new year with an impressive month-long rally. Bitcoin is trading near four-month highs after jumping above $22,300 on Friday. The top crypto surpassed the level before the collapse of the FTX exchange in November. And its 14 days of consecutive gains starting Wednesday marked its longest winning streak since 2017. But some analysts warn that the price of Bitcoin could halve before retesting tops in the second half of 2023.

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The recent BTC boom

Global macro fundamentals surrounding views for a Federal Reserve central bank, China’s reopening and an upgraded outlook for the Eurozone economy all factor into the early Bitcoin run in 2023, according to Joel Kruger, market strategist at LMAX Group. The London-based financial services provider specializes in foreign exchange markets and cryptocurrency.

“On the crypto side, we think long-term players have been looking to build exposure at perceived discounted prices,” Kruger said. “These players are betting that most of the downside from the 2022 crypto implosions is now fully priced in.”

Last year saw a wave of crypto firm bankruptcies as prices fell from all-time highs in late 2021. The spring collapse of Terra Labs’ LUNA token and sister stablecoin TerraUSD was the first crypto domino to fall, wiping out $60 billion in market value . It led to the bankruptcies of crypto firms including Three Arrows Capital, Voyager Digital and Celsius Network.

FTX Group was the last big implosion to round out the year. The second largest exchange by volume, FTX filed for bankruptcy after handing over and mishandling billions in client funds with sister company Alameda Research. Another, BlockFi, filed for bankruptcy shortly after. Bitcoin and cryptocurrencies traded near two-year lows in the months following the meltdown.

A more sustainable extraction will require deeper institutional adoption and regulatory clarity, says Kruger. “While we have seen great progress in this direction, we believe there is still more room to close this gap,” he said.

Bitcoin Price Outlook

But Kruger warns that the world’s largest cryptocurrency is not quite ready yet. “The price rally in January may have gone a bit too far and too fast, according to technical indicators showing a serious overextension,” he said. He believes further upside should be limited for the time being to allow for a period of consolidation and correction.

“Fundamentally, global markets still look quite fragile, and assurances of a Fed pivot may well be overstated,” Krueger said. As for crypto, he says the outlook remains “a bit rocky.” And speculation about the type and level of regulatory response could cause more near-term turbulence.

“We still wouldn’t rule out the possibility of a deeper pullback towards $10,000 in the first half of the year,” Kruger said. But further Bitcoin pullbacks below the $10,000 level “should be limited” before the next major top run.

This could lead to a strong Bitcoin recovery in the second half of the year, where it recovers above $50,000 and is “in a position to test and break the record,” he said.

Bitcoin price jumped above $22,300 on Friday to trade at its highest level since September. Bitcoin is up about 32% in the past month after hovering in the $17,000 range following the collapse of FTX in early November.

Crypto Stock Action

Crypto stocks have also risen with the latest rally. Exchange traded stock exchange Coin base (COIN) jumped 11.6% on Friday after falling 1.5% on Thursday. COIN stock is up 55% in the past month. Still, shares are down 17% over the past three months and 71% over the past year. Shares of Bitcoin miners Digital Marathon (MARA) rose 10% on Friday and has soared 123% in the past month. But MARA stock is down 31% over the past three months and 63% over the past year. Similarly, CleanSpark (CLSK) is up 34% for the month, but down 9.5% over the past three months and 59% over the past year. CLSK shares rose 6% on Friday.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison

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