The world of cryptocurrency started off the new year with an impressive month-long rally. Bitcoin, the top crypto, is trading near four-month highs after jumping above $22,300 on Friday. This marks a significant milestone for the digital currency, as it has surpassed its level prior to the collapse of the FTX exchange in November. In fact, its 14 days of consecutive gains as of Wednesday marked its longest winning streak since 2017. However, some analysts have issued warnings that the price of Bitcoin could halve before retesting highs in the second half of 2023.
Understanding the Factors Behind the Recent BTC Boom
There are several factors that have contributed to this early 2023 Bitcoin run. Global macro fundamentals, such as views on a Federal Reserve pivot, China’s reopening, and an upgraded outlook for the Eurozone economy, have all played a role. According to Joel Kruger, market strategist at LMAX Group, these factors have encouraged longer-term players to build exposure at perceived discounted prices. These players are betting that most of the downside from the crypto implosions of 2022 are now fully priced in.
The London-based financial services provider LMAX Group specializes in foreign exchange markets and cryptocurrency. They have noted that institutional adoption and regulatory clarity have become increasingly important in the crypto market. However, they believe there’s still more room to close this gap, and that a more sustainable recovery will require deeper institutional adoption and regulatory clarity.
The Impact of the FTX Exchange Collapse on the Crypto Market
Last year saw a wave of bankruptcies from crypto firms as prices plummeted from all-time highs in late 2021. The spring collapse of Terra Labs’ LUNA token and sister stablecoin TerraUSD was the first crypto-domino to fall, wiping out $60 billion in market value. This led to the bankruptcies of crypto firms including Three Arrows Capital, Voyager Digital, and Celsius Network.
FTX Group was the final major implosion to round out the year. The second-largest exchange by volume, FTX filed for bankruptcy after overleveraging and mishandling billions in customer funds with its sister firm Alameda Research. Another, BlockFi, filed for bankruptcy shortly after. Bitcoin and cryptocurrencies traded near two-year lows in the months following the meltdown.
Bitcoin Price Outlook
Despite the recent rally, Joel Kruger warns that the world’s largest cryptocurrency isn’t quite in the clear yet. He believes that the January price surge has perhaps run a little too far and fast, as per technical indicators showing a severe overextension. Kruger suggests that additional upside should be limited for now to allow for a period of consolidation and correction.
Fundamentally, global markets are still looking quite fragile and assurances of a Fed pivot could very well be overstated, says Krueger. As for crypto, he says the outlook is still “a little rocky.” Speculation around the type and level of regulatory response could cause more short-term turbulence.
“We still wouldn’t rule out the possibility for a deeper setback down toward $10,000 in the first half of the year,” Kruger said. But additional Bitcoin setbacks below the $10,000 level “should be limited” ahead of the next big topside run.
This could lead to a strong Bitcoin recovery in the second half of the year, where it recovers above $50,000 and is “in a position to retest and break the record high,” he said.
In conclusion, the recent BTC boom can be attributed to a combination of global macro fundamentals, institutional adoption, and regulatory clarity. However, there are also concerns about the potential for a price correction and the need for deeper institutional adoption and regulatory clarity for a more sustainable recovery. It’s important for investors to keep a close eye on these factors and stay informed about the latest developments in the crypto market. While the current rally is certainly exciting, it’s also important to remember that there is always a degree of uncertainty and risk involved in any investment. As always, investors should make sure to do their own research and consult with a financial advisor before making any decisions.
