Bitcoin started the New Year on a bullish note, having gained over 25% in the past two weeks of 2023 to trade above $21, 000 And with market capitalization now over $400 billion, Bitcoin is now more valuable than the likes of MasterCard and Meta, respectively. The largest cryptocurrency by market capitalization has held steady above $21,000, a level it has not traded since November of 2022.
A dramatic rise: Not too long ago, Bitcoin was trading below $17,000 before a rush of favorable economic data, including a decline in the U.S Consumer Price Index (CPI) which ultimately catapulted crypto and stock prices northward. BTC’s price uptick also pushed above its resistance confluence, comprising a psychological price ceiling of $20,000 and its 20-week exponential moving average (20-week EMA; the green wave) near $19,500. Breaking three resistance levels with strong volumes shows traders’ conviction about an extended price rally. Should it happen, Bitcoin’s next upside target appears at its 200-week EMA (the yellow wave) at around $25,000 — a 20% rise from current price levels.
Dollar death cross: Bitcoin’s bullish technical outlook appears against the backdrop of a relatively weaker U.S. dollar, which is down due to expectations that the Federal Reserve will stop raising interest rates as a result of lowering inflation.
- The two assets have mostly moved inversely to each another since March 2020. As of Jan. 16, the daily correlation coefficient between Bitcoin and the U.S. Dollar Index (DXY), a gauge of the greenback’s strength versus top-rivalling currencies, was -0.83, according to TradingView.
- Dubbed a “death cross,” the setup appears when an asset’s 50-period moving average crosses below its 200-period moving average. For the dollar, the death cross shows its weakening momentum, meaning its short-term trend has been underperforming its long-term direction.
What experts are saying: Bradley Duke, co-CEO at crypto ETP provider ETC Group, wrote in an email saying:
- “We see the main driver behind this 20% BTC hike over the past week key as the fact that some macro fears are subsiding with positive economic data in the US, including lower inflation stats and strong job growth numbers, in Europe, the EU released unemployment stats which were the lowest in 23 years and, China lifted many of the border restrictions. This shift in sentiment was reflected in the BTC futures market, with traders betting long four days in a row based on the Long-Short ratio.”
Mark Connors, head of research at Canadian digital asset manager 3iQ, explained:
- “Looming large in our three-part thesis on digital asset adoption is the juxtaposition of a growing U.S. debt load set against a declining workforce that is ‘ageing out. If we don’t let inflation cut our debt in real terms and we cannot grow out of it, expect more of it.” He further added, “BTC is more correlated to debasement than inflation, so not surprised to see BTC lift with the prospects of more debt.”
Craig Erlam, the Senior Market Analyst for foreign exchange market maker Oanda, noted investors’ current optimism but also questioned whether this tone would endure as companies report earnings in the weeks ahead. He said: “The question now is whether earnings season will enhance that new sense of hope or spoil the party before it gets going. Companies have until now been reluctant to let staff go which has kept the labour market tight even as certain economic indicators weaken and inflation dampens the outlook for demand and costs. A bad earnings season could undermine hopes of a soft landing that looks more possible now than it has for many months.”
Institutional investors’ disinterest: Note that although Bitcoin has risen 30% above $20,000 so far in 2023, on-chain data shows that the buying trend lacks support from institutional investors.
For instance, the total amount of Bitcoin held by digital assets holdings such as trusts, exchange-traded funds and other funds has been declining during the coin’s price increase in recent months, according to CryptoQuant’s Fund Holdings index. In addition, no unusual transactions occurred on-chain but on crypto exchanges, per the comparisons made between CryptoQuant’s Token Transferred and Fund Flow Ratio metrics, indicating that this is purely a retail rally.
What You Should Know: Ether, the second largest crypto in market value, has jumped more than 32% this year to $1,600.
Earlier this week, other major cryptos were in the green, with CRO, the token of exchange Crypto.com, rising more than 7%. SOL, the token of the Solana blockchain, was up more than 1.4% to continue its momentum over the last three weeks. FTT, the token of embattled crypto exchange FTX, also added to its recent unlikely gains, rising more than 24% at one point. The entire crypto market capitalization surpassed $1 trillion over the weekend, to which the market saw over $500 million in short liquidations which are bets against higher prices, since Friday to mark the highest such levels since November 2022.
- Meanwhile, the Crypto Fear & Greed Index has hit 45, still in the fear territory. But this is more than six times higher than where it stood in June.
