Central banks and inflation remain at the forefront as the new year begins

  /  5 minutes read
  • BTC price action is still stuck in a constrained range after remaining static over the holiday break between Christmas and New Year’s.
  • In the past week, SOL has declined by almost 20%, going from more than $12 to almost $9.70. Its decline is largely attributable to Solana’s involvement in the failures of the Terra ecosystem and the FTX cryptocurrency exchange.
  • Annual returns for the key benchmark have been declining every quarter, with the S&P 500 posting a total return of -18% in 2022.
  • The NFP jobs report is due out this week and inflation data may keep Powell and the Fed on their toes for the foreseeable future.
  • In the final two weeks of 2022, the 10-year Treasury increased by 40 basis points, from 4.38% to 4.88%, signaling weak equity markets.

The first week of 2023 for Bitcoin is uninspiring as neither volatility nor traders are present. BTC price action is still stuck in a constrained range after remaining static over the holiday break between Christmas and New Year’s. Although 2022 was arguably a classic bear market year for Bitcoin, with annual losses of almost 65%, few people are currently actively forecasting a recovery. For the typical hodler, who is looking for macro triggers from the US Federal Reserve and economic policy effects on dollar strength, the situation is complicated.

The Federal Reserve’s policies will also work against the supply side because they will cause investments to slow down. This will happen both directly as a result of rising interest rates and indirectly as a result of businesses reevaluating their prospects in light of the weakening economy. The current circumstances and the actions being taken to correct them will invariably result in a significant component of the economy failing. If the Fed’s goal is to achieve an inflation rate of 2%, then it makes sense that their balance sheet could expand by the same amount.

Source: Tradingview

Despite corrective policies undoing extravagant generosity and an unending stream of bad news, the S&P is only down about 18%. The Fed is attempting to contain inflation by stifling demand in the face of unprecedented recent monetary stimulus, unprecedented and ongoing fiscal stimulus, and significantly constrained supply chains as a result of COVID, global government policies, overdependence on China, etc. The Fed has a difficult task ahead of it because stimuli and limited supply are a perfect storm for inflation.

Bitcoin’s Weekly Death Cross:

Despite the challenging start to the year that Bitcoin is facing, we think that in the coming months’ Bitcoin might reach an all-time low and start its next recovery phase followed by an upward phase. Thus, before a genuine crypto rally begins in earnest, I’d anticipate a lot of sideways movement. Indicators with moving averages are frequently used in technical analysis. A death cross, which is regarded as a bearish indicator, occurs when the 50-day moving average crosses below the 200-day moving average.

Source: Tradingview

According to the weekly chart, the 50-day moving average may cross below the 200-day moving average for the first time in Bitcoin’s history. If Bitcoin’s price stays at these or lower levels over the coming weeks, this might occur. All of this is in line with predictions that Bitcoin should reach a final bottom at around $10,000 to $15,000, or a range therein. All of this should be taken with a huge grain of salt, and past performances is no guarantee of future returns.

Concluding Thoughts:

Even though the upcoming halving of Bitcoin’s supply will not take place in 2023, the year will still be very important to the recovery of the cryptocurrency ecosystem. The ecosystem is currently preparing for the next wave of disruption by implementing aggressive blockchain upgrades, implementing updated business strategies, and regaining the attention of investors. The year 2023 will be one of recuperation for investors, marking a transition away from losses and mistrust toward self-custody and investments based on information. To “make it” in the cryptocurrency space, you no longer need to focus solely on becoming a millionaire overnight; rather, you need to focus on developing, supporting, and propagating an original perspective on the direction that money will take in the future. In the first half of 2018, Bitcoin prices should stabilize. But that doesn’t mean we’ll rocket off to unprecedented heights right away. This would be consistent with the previous Bitcoin cycle and suggests that the second half of the year will see relatively flat prices. Despite the fact that the pace of interest rate hikes is slowing, the Federal Reserve has yet to signal a shift in policy. As soon as those signals arrive, risk-on sentiment should improve noticeably.

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