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James Carter

February 7, 2023

Crypto market stalls with Bitcoin, future unclear.

On Tuesday, prices of cryptocurrencies were relatively stable, remaining close to the levels at which they had been trading since the beginning of 2023. The momentum behind the recent crypto rally may have run out of steam, which means that digital assets could be in for losses.

In the previous twenty-four hours, the price of one bitcoin has increased by slightly less than one percent, reaching $23,000. Since the start of the year, the value of the most valuable digital asset has increased by forty percent, surpassing lows not seen in two years and trading at levels not seen since the summer of 2017.

As a result of this trend, many crypto traders are betting that the brutal bear market is nearing its end. The excitement, however, has mostly dissipated in the month of February, as Bitcoin has been unable to maintain a price above $24,000 and has instead frequently returned to around $23,000.

According to Katie Stockton, managing partner of the technical research consultancy Fairlead Strategies, “Bitcoin has seen its counter-trend surge stall in response to short-term overbought conditions.” “Noting that it has experienced a considerable loss of short-term positive momentum, we believe that Bitcoin will fall back even further, which will support our short-term bearish outlook. Near the $19,700 area, initial support can be found at the 200-day moving average.

The recent upswing in cryptocurrency prices has occurred concurrently with similar movements in the stock market. The Dow Jones Industrial Average and the S&P 500 have increased in value so far this year as investor sentiment toward risky assets, such as equities and digital assets, has improved.

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Because there is a correlation between the asset classes, Bitcoin and its peers will have a similar response to the macroeconomic catalysts surrounding inflation, interest rates, and the risks of a recession. This week will be filled with several statements from officials at the Federal Reserve.

Matthew Sigel, VanEck’s head of digital assets research, recently wrote that technical considerations support Bitcoin and support a market looking past the “crypto winter.” These signs suggest the market is through “crypto winter.”

Among these are the facts that Bitcoin’s price has never dropped for two consecutive calendar years, that 2022 was one of the most difficult years on record for the asset, and that the current bear market has lasted more than 380 days, which is longer than the average duration of a bear market. Sigel pointed out that the month of November saw “significant capitulation” from long-term investors, which he defined as people who had held bitcoin for at least six months.

This is yet another indication that the bottom of the bear market may have been reached. At the same time, the Bitcoin leverage ratio has significantly decreased, which suggests that market players are exercising caution, according to Sigel.

According to Sigel, the increase in the M2 money supply is significantly associated with the growth of Bitcoin, which is another factor that is acting as a tailwind for Bitcoin. In addition, there are trends in the global money supply that are also acting as a tailwind for Bitcoin.

M2 growth recently reached 0% on an annual basis for the first time, but the three-month pace of global money supply change is currently greater than the 12-month change. This is “historically a highly favorable indicator for a Bitcoin bottom,” according to Sigel. Investors who are exclusively focused on the Fed risk missing out on the benefits of the increasing global liquidity.

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