Will Bitcoin Price Winter Continue in 2023? 8 Important considerations

In 2022, Bitcoin, Ethereum and the multitude of altcoins riding on the original gangster cryptocurrency’s very long coat tails managed their most brutal crypto winter to date. Of course, the cryptocurrency industry is eager to end the long, drawn-out Bitcoin price winter.

From Bitcoin miners and mining pools to Layer-2 chain developers like the Lightning Network to crypto day traders and crypto investors – confidence is shaken, fear and greed are high, and the metaphorical blood continues to flow in the streets. When will it end?

2023 Bitcoin price history was a doozy and a half

The sharp market correction after the $69K ATH in November 2021 was reasonable, understandable and even expected by many. When the price dropped to $30,000 in May, it was nerve-racking. But the Bitcoin price still looked pretty good for anyone who held bitcoin from January 1, 2018 to January 1, 2021. During this three-year period, BTC traded at an average of around $10,000.

Then the fear really started to set in as Bitcoin’s price fell into an unequivocal crypto winter pattern as the Northern Hemisphere approached summer. The sudden plunge in one week in June from the $30K handle to the $20K level was a big shock to the hearts of crypto traders.

As we round off the 4th quarter towards 2023, the situation with Bitcoin’s price is particularly dire. While there was no doubt that we were in winter all year, at least Bitcoin held the key support level of $20K from June to early November.

FUD sets in, and then goes from bad to worse

The price of $20,000 per coin was an important psychological support level. Four and a half months of price action near this figure seemed, after the dramatic price collapses in H1, like the good promise of an extended bottom before the next trend rally.

The question now is how Bitcoin will perform in Q1 2023 and beyond.

There are several well-known 8,000-pound gorillas in the room:

Among other things – massive losses to financially and legally insane crypto ventures, fierce competition from smart contract chains, the question of BTC’s correlation to US tech stocks, intense regulatory ambiguity and a pause from cautious but very interested institutional investors.

The following is a brief summary of 8 key long-range factors and their coincidence of the Bitcoin price heading into 2023. (You can read a similar analysis and commentary published by the same author on CryptoPotato for the Bitcoin price in early 2021 here.)

Bearish Indicators: Four Bitcoin Headwinds in 2023

1. Collapse of LUNA, FTX and others in 2022 weighs on the spot price of Bitcoin

“You don’t find out who’s been swimming naked until the tide goes out” is an often-used aphorism by Warren Buffett, the old ‘Oracle of Omaha’, to describe the effect of broad market corrections on the weakest participants in the game. They shake themselves completely out of the game as the downturn becomes a cash squeeze for the underlying businesses that are valued by the market.

The first phase of 2022’s Bitcoin winter appeared to market watchers as a clear case of a necessary and inevitable price correction to a deeply overheated price level after the November 2021 peak. But the secondary effect of the price correction was to see who was just boasting to investors and who really had cash reserves to weather the Bitcoin crash. When the bear market revealed that several crypto companies were insolvent, it sent the prices of BTC, along with other coins, cratering for the rest of the year. Investors are now understandably cautious about forecasting the industry and stock markets to pick winners.

This year’s bear market revelations of insolvency and zero confidence in billion-dollar crypto startups like LUNA, FTX and several crypto hedge funds are hitting even high-profile crypto investors like the Winklevoss Twins and Kevin O’Leary, costing them dearly.

2. Uncertainty in US crypto regulation could drag Bitcoin price down through 2023

Ambiguity in cryptocurrency regulation in the United States and around the world where major crypto players operate is hurting the industry’s growth prospects by putting large investors on hold. They are waiting to know what the government will do with cryptocurrencies before jumping into these turbulent waters.

Investing in cryptocurrency is fraught with enough dangers and risks, even without a sudden intervention by government regulators that unexpectedly increases the cost of regulatory compliance. One of the most critical questions hanging in limbo at the moment is whether the US will classify cryptocurrencies as commodities, securities or something else entirely.

3. Bitcoin faces tougher competition than ever

While the constant and seemingly never-ending fall in crypto prices this year has shocked investors, crypto industry developers have slogged through the Bitcoin winter to improve the sector’s products and make them ready for more adoption and scaling. Competition from BTC substitutes like Ethereum and other altcoins could prevent the original gangster crypto from rallying with the strength it otherwise could.

Vitalik Buterin, i a recent response to a frustrated crypto investor on Twitter, said:

“I would recommend increasing your distance from trading/investing circles and getting closer to the technology and application ecosystem. Learn about ZK-SNARKs, visit a meetup in Latin America, listen to All Core Devs calls and read the notes until you have memorized all The EIP numbers …”

That’s what Buterin and the Ethereum team have been doing, not sweating the extended market price decline and keeping their heads down and their noses to the grindstone. The Ethereum merger to upgrade the Ethereum Mainnet from a proof-of-work system to a proof-of-stake network is intended to scale the smart contract blockchain adoption faster when the next bull run occurs. It was completed in September.

4. Bitcoin / stock market correlation stronger than ever

Macro conditions are difficult for all financial markets heading into 2023. As Tesla and SpaceX CEO Elon Musk recently summarized:

“Macro conditions are difficult: energy in Europe, real estate in China and crazy Fed interest rates in the US”

Meanwhile, perma-bear Nouriel Roubini (whom the attention markets call “Dr. Doom” for his inveterate bearishness) predicts that a looming severe recession will continue to depress US stock prices. Although the broad S&P 500 benchmark is already down around 15% for the year, Roubini says we can expect another 25% decline in share prices from here.

Because the Bitcoin stock market correlation has remained closely aligned for over a year now, if stocks continue to decline, they could easily take bitcoin spot prices down with them. Some recent bearish stock market data and analysis are here and here.

Bullish Indicators: Four Bitcoin Tailwinds in 2023

1. Bitcoin / Stock Market Correlation Stronger Than Ever (Familiar?)

Now, the correlation between Bitcoin and the stock market could be a bullish indicator for bitcoin, depending on your view of how the stock markets will move in 2023. If stocks continue their downtrend into Q1 and Q2, assuming the Bitcoin spot price remains tied to stocks, we will will see a bear market extending into 2023.

However, if Bitcoin is not decoupled from the stock market and we get a NASDAQ rally in 2023, odds are good that bitcoin spot prices will rise along with the broader technology and financial standards.

In the very short term, stocks are unlikely to have a Santa Claus rally to round out Q4. However, stocks may well rebound in 2023 after posting significant losses for calendar year 2022. (On the year-to-date track, the NASDAQ Composite is down about 30%, while the S&P 500 is down 18%

At least one top Wall Street analyst says one of the biggest headwinds potentially facing stocks in 2023 — downgrades in earnings estimates — is overstated. That’s because changes in year-over-year earnings have a statistical correlation to stock price changes of almost zero.

Meanwhile, a recent report from CNBC is optimistic about a stock market rally in 2023, citing retail investor sentiment. They seem to believe that the bottom will be next year and are going on a buying spree in technology stocks in particular.

2. Bitcoin is oversold like crazy as we enter 2023

Perhaps one of the most important bullish leading indicators for the Bitcoin price next year is the absolutely vicious oversold condition of bitcoin trading pairs on floating crypto exchange markets.

Bitcoin is so oversold at this point that the trend line on the Bitcoin Rainbow Chart has screamed straight through “BUY!” zone and settled for months now in “Basically A Fire Sale!” the zone in the diagram.

The logarithmic graphical Bitcoin Rainbow Chart is a static BTC trading recommendation tool that helps investors and traders determine the true value of Bitcoin based on its historical trends.

3. BTC Fundamentals are strong

While the price of a coin on the exchange has taken one steep drop after another, with each headline-making hit to the industry’s major players, the fundamentals of the economy and market for Bitcoin remain strong.

While the hash rate has dropped somewhat over the past month, the overall view of the Bitcoin economy is one of a very solid hash rate to price ratio for the Bitcoin network.

Miners have continued to invest heavily in their business, even with the price in steep and entrenched capitulation all year. Throughout the Bitcoin winter, a solid half to nearly half of the coins have actually been held at unrealized profits.

4. It is about to count institutional investors and hedge funds

Most of the institutional investment in cryptocurrencies has yet to arrive as we finish 2022. Large hedge funds that invest for retirees’ pensions and venture capitalists are still waiting to tap into the opportunities that Bitcoin’s price growth and volatility represent for them.

They’re waiting to get the green light from the government to move forward, and while they wait, they’re continuing to learn and hire blockchain experts and engineers to prepare for when that day finally arrives—perhaps in 2023.

When they finally come in, allocating half a percent or one percent of their books to cryptos like Bitcoin or Ethereum, the market will undoubtedly find a new center of gravity, with resilient key support at a much higher level than the market has seen so far. retail investors.

Also: Don’t forget the Millennials! They like crypto better than stocks.