This year was quite stressful for all investors. We are ending 2022 and the question is whether the turbulence will continue during 2023. This is where we will look together at the factors affecting bitcoin as well as possible forecasts for next year.
The end of bitcoin
Even though some would say that bitcoin is not based on anything. He was still the one who popularized the emergence of blockchain. In addition to that, bitcoin is also the most responsive to the unlimited supply of fiat currency. It is not based on any company/institution.
As soon as bitcoin goes through a difficult period, the answer is often the same, the end of bitcoin and the end of cryptocurrency are announced. Since it is a fairly volatile asset, the variation of bitcoin in one direction or another can be very surprising if you do not manage your exposure and risk. The more reward an asset offers, the higher the risk. This rule applies a lot, and bitcoin is no exception. Any bear market can result in heavy losses.
Lessons to be learned from 2022
There are several things to take away from 2022. First, it is important to understand that the emergence of something new can have flaws. There is nothing new in this, we learn and we correct. And this is how the system gradually develops by learning from mistakes. We’ve had several events that have rocked the cryptocurrency world, including Terra Luna, Celsius, and recently FTX.
FTX has really been an argument for anti-crypto to use to support the fact that cryptocurrency is just speculation. Being an important platform for transactions within the ecosystem, this weakened the whole. The positive point to remember is that the bear market of 2022 has made it possible to clean up a lot of what is suspicious. Sorting like that, only the most solid projects and companies will outlast this bear market and outlast the future.
However, there are several things to remember and take into account in the future:
- Only invest the money you are willing to lose
- Avoid high leverage as cryptocurrency already has a lot of volatility
- Do not use credit money to invest
- Keep your cryptocurrency on ledger/cold wallet
- Don’t put everything in the same basket (only one crypto)
- Don’t put all your savings in one place
Factors Affecting Bitcoin
So far, bitcoin has proven to us that it doesn’t move much differently than other major asset classes. It benefited partly from the abundance of liquidity, but also from low interest rates during the decade 2010-2020, as did technology.
But in addition, we can see that it can vary depending on several factors, such as monetary policy, which simultaneously acts on the following three aspects: growth, inflation, liquidity. Then bitcoin can also vary according to other phenomena such as geopolitical issues, FTX-type black events, market sentiment, halving, the dollar…
As shown in the graph below, the best performance of a stable bull run is found during accelerations in economic growth. And on the other hand, the most volatile performance is found during economic downturns. An economic slowdown results in more volatility and less liquidity.
A country’s monetary and fiscal policy has a major influence on the development of assets as well as performance. Therefore, it is important to understand the ins and outs. They simultaneously affect growth, liquidity and inflation.
Regarding the dollar, we can see that a decline or a large range on the US dollar is also positive for bitcoin and vice versa.
In addition to the fact that bitcoin’s performance can be affected by monetary policy, it also acts as a counteroffensive against the FED with its limited supply of bitcoins.
The FTX case
There are of course spontaneous events that also affect the ecosystem, such as the FTX case. This type of event has even more negative consequences during an economic downturn because there is less liquidity in the financial system in general. And in addition, investors often want to withdraw their money at the same time. This applies not only to crypto, but also to traditional markets. We remember the Lehman Brother case, which happened in the middle of a recession, or the Madoff (Ponzi) case in 2008.
As for geopolitical issues, they are difficult to predict and also have multiple impacts/consequences in an economic downturn.
The other phenomenon specific to bitcoin remains the halving. It is a phenomenon that makes it possible to halve the reward given to bitcoin miners who register new blocks on the blockchain. Bitcoin has a limited supply, making it a rare asset like gold. So far, 18 million bitcoins have been mined. Each halving happens every 4 years and it gets harder and harder to mine bitcoin.
Here’s a graph highlighting the halving and variation of bitcoin:
Bitcoin predictions for 2023-2024
First of all, we know that bitcoin is not insensitive to monetary policy, which itself affects inflation, growth and liquidity. In terms of the rate hike cycle, we may be at the end of the bull cycle by the end of January. quarter 2023. Looking at the economic leading indicators, there is still no sign of an acceleration of growth in the next few months as it is still negative.
This also increases the likelihood of a recession during 2023, suggesting that defensive assets remain favorable to assets. risk of (riskier assets).
Since the cycles can last around 12 to 18 months, this means that the slowdown cycle should end during the first half of 2023, since it started in late 2021. If the case of recession occurs, bitcoin may move towards the 13k-14k levels.
It is when financial conditions will change during 2023 to revive growth that it becomes interesting as a new acceleration cycle could bring assets risk of as bitcoin towards a new stable bullrun (against ATH and more), which could therefore continue in 2024. It is also known that 2024 is the halving year, which remains an influential factor.
From a technical point of view for bitcoin, for a new long-term bullish cycle, it would be better to have a close above the 10-month moving average (monthly image).
The content of this article is for informational and educational purposes only, it is in no way intended as advice. The future remains an uncertain notion, pOnly the management of risk makes it possible to better control uncertainty.
Based on the leading indicators, we can conclude that the economic slowdown is likely to continue during the first half of 2023. This may limit a sustainable run towards ATHs as long as the economic slowdown continues. We will have to wait for monetary policy to become more accommodative again, hopefully also during 2023. This could have a positive effect such as an acceleration of growth. And this is how a new cyclicality could be created that could last 12 to 18 months and extend through 2024.
Receive an overview of news in the world of cryptocurrencies by subscribing to our new service atdaily and weekly so you don’t miss any of the Cointribune essentials!
After working for 7 years in a Canadian bank, including 5 years in a portfolio management team as an analyst, I left my position to devote myself fully to the financial markets. My goal here is to democratize financial market information to the Cointribune audience on various aspects including macro analysis, technical analysis, intermarket analysis…