Happy New Year and welcome to a new Crypto Newsletter! This time I’ll discuss in general terms what I think lies ahead for us this coming year.
Have we put the bottom behind us? Are we heading back to new all-time-highs? Or do we have to endure a recession before we can think about a new bull market?
The cryptocurrency market has been dull for the past two months. Since the fall of FTX and the last edition of this newsletter two months ago, the price has almost only moved sideways.
Bitcoin was quoted at around $15,500 at the lowest point and since then, the question has arisen as to whether we have reached the bottom of the cryptomarket.
If you believe most macro-indicators, that indeed appears to be the case or we should be very close.
In the images below, I have added a number of indicators from "Look Into Bitcoin". Although these indicators have not been exact predictors of tops and bottoms in the past, they have all been brilliant gauges of whether the market was "overbought" or "oversold".
The green zone in each represents the 'fair value' zone. As you can see all of them are in the zone, with the Reserve Risk being oversold heavily. Historically, this is a great sign for positive investment returns on Bitcoin.
You can find the exact explanation of each indicator on lookintobitcoin.com.
However, many macro-economists expect the US economy to enter a recession in the current or coming quarter and the stock market to reach a bottom somewhere in Q1 or Q2.
If you want to know more about this, listen to this podcast in which Felix Zulauf explains his macro-thesis.
The correlation between crypto and the traditional stock market has been high last year, especially during corrections. If the stock market were to fall to new lows due to an impending recession, and decline another 15-20%, then crypto is likely to correct sharply again as well.
Whether Bitcoin then falls to new lows depends, in my opinion, on whether it has had a significant interim rally by then or not.
Personally, I think it is likely that Bitcoin will test one or both of the major support levels around $14k and $12k when this correction happens.
Therefore, I'm still holding some cash, but I don't want to bet on it completely. In the bear market of 2018, everyone also expected the important support level around $3k to be tested, and that didn’t happen.
So for the first time in a long time, I have re-entered the market with part of my portfolio.
In any case, I think it is very likely that if we get one more correction - as a result of recession fears - that will mark the bottom for the traditional- and cryptomarket.
Inflation has steadily declined in recent months, giving the FED some space to gradually lower interest rates again in 2023 and alleviate a recession.
However, before we can think about a new bull market with new all-time-highs, the FED will have to significantly lower interest rates and restart the money printer.
And although I expect them to do so at some point in the coming 3-5 years, I wonder if that will be the case next year.
The inflation genie is out of the bottle and the FED is determined to ensure that this inflation does not immediately reappear through excessive monetary policy.
To do so, it seems logical that they will try to keep interest rates slightly higher than we are used to for a longer period.
This does not mean that there will be no room for small rallies in 2023. But I think that a large new bull market will have to wait until the FED decides to go ballistic again with regards to their monetary policy (again: I do expect this to happen, but assign just a small chance to it happening next year).
I will use the coming year mainly to cheaply scoop the coins of the crypto projects that I believe in most. For the long term these are mainly Bitcoin and Ethereum.
Good luck in the coming year!
Disclaimer: The information in this newsletter should not be considered financial advice.