Bitcoin and other cryptocurrencies had a major meltdown in 2022 as the coin faced numerous battles. This decline also coincided with a crash of global stocks, including well-loved names like Carvana and Tesla. In all, Bitcoin price dropped from over $67,000 in November 2021 to about $15,500 in 2022. Similarly, Ethereum fell from almost $5,000 to about $850. So, what next for the BTC/USD price in 2023 and beyond?
To understand whether BTC price will recover in 2023, we need to understand why the price declined sharply in 2022. First, this decline was simply because the macro environment changed drastically in 2022. From a fiscal standpoint, the trillions of dollars in stimulus funds that were distributed in 2021 were not there in 2022. As such, Americans did not have any stimulus checks during the year. Instead, they saw the standard of their life worsen because of soaring inflation, which rose to a 40-year high. They did not have much money to spend on Bitcoin and meme stocks.
Second, the Bitcoin price declined because of monetary policy issues. In the US, the Fed delivered a series of jumbo rate hikes that pushed mortgage rates to the highest level since the Global Financial Crisis. Similarly, central banks like the Swiss National Bank, Bank of England, and European Central Bank also hiked several times. Historically, risky assets like Bitcoin and tech stocks tend to react negatively to high rates. This also explains why the Nasdaq 100 index tumbled in 2022.
Finally, there was great contagion in the crypto sector as companies like FTX and Voyager Digital collapsed. The de-pegging of stablecoins like Terra USD and Acala USD had a major impact in the sector amid contagion woes. These collapses led to contagion risks, which pushed more people out of the crypto sector.
I suspect that Bitcoin price will have a bumpy first quarter and then stage a strong recovery later this year. This is in line with what Art Cashin, UBS Director of Floor Operations told CNBC on the stock market. He hinted that the Fed will continue hiking interest rates in the first quarter and then hit a strategic pause.
Another catalyst for BTC prices will be crypto regulations. While some BTC loyalists don’t believe in such regulations, the reality is that the industry needs it. Without clear regulations, we will continue seeing some companies like FTX and Voyager collapse. Therefore, I suspect that the investing community will appreciate these regulations.
Therefore, I suspect that the BTC price will range between $13,880 and $20,000 in the first quarter and then start a recovery later this year. The main catalyst for this recovery will be the Fed pivot. As I wrote earlier today, I believe that the Fed will hint of a rate cut later this year as inflation moves steadily to the 2% target.
This post was last modified on Jan 03, 2023, 05:23 GMT 05:23