This year was quite trying for all investors. We are ending 2022 and the question remains whether the turbulence will continue during 2023. This is where we will see together the factors that influence bitcoin as well as possible forecasts for next year.
The end of bitcoin
Even if some will say that bitcoin is not based on anything. He was still the one who popularized the emergence of the blockchain. Beyond that, bitcoin is also the one that best responds to the unlimited supply of fiat currency. It is not based on any company/institution.
As soon as bitcoin goes through a difficult period, the response is often the same, the end of bitcoin and the end of cryptocurrency are announced. As it is a fairly volatile asset, the variation of bitcoin in one direction or another can be very surprising if you do not manage your exposure and risk. Also, the more reward an asset offers, the higher the risk. This rule applies a lot, and bitcoin is no exception. Every bear market can involve big losses.
Lessons to be learned from 2022
There are several things to take away from 2022. First, it is important to understand that the emergence of something new can have flaws. There is nothing new about this, we learn and we correct. And this is how the system gradually evolves by learning from mistakes. We have had several events that have weakened the world of cryptocurrency, including Terra Luna, Celsius and recently FTX.
FTX has really been an argument for anti-cryptos to use to support the fact that cryptocurrency is just speculation. As it was an important platform for transactions within the ecosystem, this weakened the whole. The positive point to remember is that the 2022 bear market has made it possible to do a lot of cleaning up on what is suspicious. This is how, by sorting, only the most solid projects and firms will outperform this bear market and outperform in the future.
However, there are several things to remember and take into account in the future:
- Invest only the money you are willing to lose
- Avoid high leverage since cryptocurrency already has a lot of volatility
- Do not use credit money to invest
- Preserve your crypto-currency on ledger/cold wallet
- Do not put everything in the same basket (only one crypto)
- Don’t put all your savings in one place
Factors Influencing Bitcoin
So far, bitcoin has proven to us that it doesn’t move much differently than other major asset classes. It benefited partly from the abundance of liquidity, but also from low rates during the decade 2010-2020, just like technology.
But beyond that, we can see that it can vary according to several factors such as monetary policy which acts simultaneously on the following three aspects: growth, inflation, liquidity. Then, the bitcoin can also vary according to other phenomena such as geopolitical problems, black events of the FTX type, market sentiment, halving, the dollar…
As shown in the graph below, the best performance of a stable bullrun is found during accelerations in economic growth. And on the other hand, the most unstable performance is found during economic downturns. An economic slowdown results in more volatility and less liquidity.
The monetary and fiscal policy of a country have a great influence on the evolution of assets as well as performance. This is why it is important to understand the ins and outs. They act simultaneously on growth, liquidity and inflation.
With regard to the dollar, we can see that a drop or a large range on the US dollar is also positive for bitcoin and vice versa.
Moreover, beyond the fact that the performance of bitcoin can be impacted by monetary policy, it also acts as a counter-offensive against the FED with its limited supply of bitcoins.
The FTX case
There are of course spontaneous events that also affect the ecosystem such as the FTX case. This type of event has even more negative consequences during an economic slowdown, because there is less liquidity in the financial system in general. And in addition, investors often want to withdraw their money at the same time. This does not only concern crypto, but also traditional markets. We remember the Lehman Brother case which happened in the middle of a recession or the Madoff (Ponzi) case in 2008.
As for geopolitical problems, they are difficult to anticipate and also have more impacts/consequences in an economic slowdown.
The other phenomenon specific to bitcoin remains the halving. It is a phenomenon that allows to halve the reward given to bitcoin miners who register new blocks on the blockchain. Bitcoin has a limited supply, making it a rare asset like gold. So far, 18 million bitcoins have been mined. Each halving happens every 4 years, and it gets harder and harder to mine bitcoin.
Here is a graph highlighting the halving and the variation of bitcoin:
Bitcoin predictions for 2023-2024
First of all, we know that bitcoin is not insensitive to monetary policy, which itself affects inflation, growth and liquidity. Regarding the rate hike cycle, we may be on the end of the bull cycle by the end of Q1 2023. Looking at the economic leading indicators, there is still no rebound for an acceleration of growth for the next few months since it is still negative.
This also increases the probability of a recession during 2023, which suggests that defensive assets remain favorable to assets. risk on (riskier assets).
As the cycles can last around 12 to 18 months, this means that the slowdown cycle should end during the first half of 2023 since it started at the end of 2021. If the case of the recession arises, it could be that the bitcoin is moving towards the 13k-14k levels.
It is when the financial conditions will change during 2023 to revive growth that it will become interesting since a new cycle of acceleration could bring assets risk on like bitcoin towards a new stable bullrun (towards ATH and more) which could therefore continue in 2024. It is also known that 2024 is the year of the halving, which remains an influential factor.
From a technical point of view for bitcoin, for a new long-term bullish cycle, it would be better to have a close above the 10-month moving average (monthly picture).
The content of this article is for informational and educational purposes only, it is in no way intended as advice. The future remains an uncertain notion, sOnly the control of risk makes it possible to better control uncertainty.
Based on the leading indicators, we can conclude that the economic slowdown is likely to persist during the first half of 2023. This could limit a sustainable bullrun towards ATHs as long as the economic slowdown persists. We will have to wait for monetary policy to become more accommodative again, hopefully during 2023 as well. This could have a positive effect such as an acceleration of growth. And this is how a new cyclicality could be set up that could last 12 to 18 months, and extend throughout 2024.
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