January was bitcoin’s best month since 2021, but no crypto rally yet
by Arthur · February 9, 2023
Bitcoin is coming off its best month in more than a year. It has already recovered more than half of its losses in 2022, and some say it has bottomed out in this crypto winter. However, for some investors, the strong month is not necessarily a green light to jump back into the crypto market. As of Tuesday, bitcoin is set to end the month up 38.39%, which would make it the best month since October 2021 and the best January in 10 years, according to Coin Metrics. Ether, which led the crypto recovery last summer ahead of the Ethereum network upgrade dubbed “the merge,” is up 31% this month, coming off a 67.06% decline for 2022. For the most part, bitcoin has been playing catch-up since it ended 2022 down 63.96%. At the same time, investor sentiment has been boosted by lower inflation readings and optimism around the possibility that the Federal Reserve will soon slow down its inflation-fighting rate hikes. “The bad news and the subsequent headlines [at the end of last year] made bitcoin extra sensitive to good news,” said Callie Cox, US investment analyst at investment firm eToro. “However, we’re not so sure bitcoin is ready for another rocket ship rally just yet.” “If the Fed stops walking, it will probably keep prices high until inflation is under control,” she added. “It may take a while and we still don’t know if a recession will materialize or not. If it does, bitcoin could find itself under pressure as investment declines and unemployment rises.” BTC.CM= YTD mountain Bitcoin’s strong start While the price of bitcoin may fall again, many investors see signs that the bottom was just below $17,000 in December Bad news continued throughout January, mainly centered around cryptolender Genesis, which filed for bankruptcy more than a week ago, and parent company Digital Currency Group.Investors are on the lookout for potential second- and third-order effects of the Genesis failure Still, prices continues to rise.On top of that, the amount of bitcoin transacted across exchanges is recovering, and bitcoin dominance, which shows how much of the crypto market capitalization consists of bitcoin, has risen as much as 10% since the beginning of year. “This marks the first meaningful increase since May 2022, i.e. during Luna’s fall,” Citi analyst Joseph Ayoub said in a recent note. “So far, the increase in BTC dominance lol. ok reminiscent of April 2019, where a BTC rally marked a bottom in the crypto market, much like increasing BTC dominance of late.” Macro challenges ahead. shock as downside shock, a big departure from 2022,” according to Greg Magadini, director of derivatives at Amberdata. As for the bottom, he added, the macro picture remains a big challenge. “BTC showed a lot of correlation with traditional risk assets in 2022, that trend is probably not over,” he said. “This means that the future path of the Fed remains very important.” The Fed began its two-day policy meeting on Tuesday and investors will watch the conclusion on Wednesday for the latest policy update. Lyn Alden, founder of Lyn Alden Investment Strategy, looks at both Treasuries and the Fed. Liquidity conditions improved in the fourth quarter thanks to the fiscal tapering, adding liquidity to the system and offsetting the Fed’s quantitative easing. “Once the debt ceiling is resolved, likely by early summer, the Treasury will have to begin replenish their treasury account, which will suck liquidity out of the system,” she said. “There is a decent probability that the bottom for b itcoin is in, but the market is not out of the woods yet until we see the resolution of Treasury’s general account withdrawal.” “I consider this to be a very attractive long-term accumulation zone for 3-5 year holdings, but there is still a lot of risk with a 3 -12 months view,” Alden added. Cox of eToro said that with so much uncertainty remaining, she has focused on the technicals, noting that bitcoin crossed its 200-day moving average in January, rising above its own average close over the past 200 days. Hitting that mark is considered an indicator that the asset is in an uptrend. However, Katie Stockton, a chart analyst and founder of Fairlead Strategies, is skeptical that the rally will last as the 200-day has proven to be a false signal for bitcoin in the past. Cox is more optimistic. “If bitcoin can hold that line, it could hover above $20,000 for a while. From there, I expect bitcoin to follow other risk assets for the foreseeable future — speculation continues about the health of the economy and the Fed’s plan for interest rates,” she said.
