The latest rebound on bitcoin as well as the entire crypto universe has generated quite a bit of enthusiasm on the various social networks. This presumably assuming that the bottom is behind us, but is that really the case? This is where we will look at several factors together to see if the lows are already priced.
Factors Influencing Bitcoin
Before determining anything, it is best to review the factors that will influence the movements of Bitcoin. Broadly speaking, there are certain factors that are similar to those used for more speculative assets such as an environment “risk on”. In this kind of category, there are several things to take into account such as the general monetary policy, but also the cyclical trend of growth, the variation of the US dollar or the sentiment of the crypto market.
In another register, there may also be factors that are specific to bitcoin such as the halving every 4 years, the accumulation of whales or the analysis on chain.
The factors of more speculative assets
This term is broad, but more speculative or risky assets perform perfectly in an environment “risk on” . For example, this type of asset evolves very well when there are liquidity injections or a cyclical trend of accelerating growth.
- The monetary policy of central banks has a major role in terms of overall liquidity. When monetary policy is accommodative, such as pumping money or keeping rates low, riskier assets have a better environment in which to move. In the opposite case, whether it withdraws liquidity via a restrictive program or raises rates, “risk on” type assets will have more difficulty evolving. We can see this with ARK ETFs or simply with the crypto universe.
- A cycle of growth acceleration can be significant to be able to absorb bad news or rate hikes. Therefore, in a cycle of accelerating growth, “risk on” assets have evolutionary potential.
- The question of the US dollar also remains a major factor. The US dollar is a little bit the benchmark fiat currency worldwide. Many raw materials or commercial exchanges are done in US dollars. Therefore, a high US dollar may limit a conversion request to obtain bitcoins. And in the other direction, a weak dollar can have a positive effect on the evolution of bitcoin.
- Market sentiment is also a very often used tool. The principle is to buy when the operators are afraid and sell when the operators are too greedy.
Factors specific to bitcoin
As we said before, beyond the more fundamental elements of the environment, there are factors specific to bitcoin. We can speak here of the halving which consists of reducing the number of bitcoins offered per mined block every 4 years. This somewhat decreases supply, and can have a positive impact if supply decreases relative to demand. The next Halving will take place in 2024.
Then, there will be several tools specific to bitcoin by doing on-chain analysis, such as determining the losses made, seeing the level of the whales…
However, the important aspect remains in my opinion to determine the favorable environment to have a sustainable bullrun towards ATHs on bitcoin.
The current situation
There are still several elements that show that the environment is not yet the most adequate at present. The recent rebound of bitcoin and the crypto universe in general is mainly due to the drop in the US dollar (quite high during 2022) but also thanks to the negative sentiment of the crypto market. There are therefore several questions to be asked to determine the current situation.
Is monetary policy currently accommodating?
We know the rate hike cycle is very close, another 25 or even 50 basis points and then it looks like most of the work is done. The futures market prices an evolution towards 4.95%. Consequently, monetary policy is not quite accommodating yet knowing that the QT is still in progress (Quantitative tightening).
One of the most favorable arguments for bitcoin remains money printing. Assuming to inject money, riskier assets like bitcoin could appreciate in a more sustained way. For the moment, this is not yet the case.
Is the pivot sufficient to have a sustainable bullrun towards ATHs?
A pivot is not always significant of a major reversal. It all depends on the state of growth at that time. If growth maintains a stable level, well above its average, this is favorable. But if growth is below its average in general, this is not a factor that can help sustainable development in the long term. Currently, the level of growth is below its average, and the FED has not yet made the pivot.
Are we in a cyclical trend of accelerating growth?
Currently, we are in a cycle of economic slowdown with a growth level of around 1.5%. As the economy is dependent on cash to stimulate growth, monetary and fiscal policy can have a significant impact on growth and therefore financial markets. For example, injecting money is used when the Fed has run out of other ammunition to stimulate growth and it is necessary to stimulate growth. This then makes it possible to provide a good environment for the assets risk on. So far, this is still not the case.
The case of the US dollar and market sentiment
In terms of the US Dollar or market sentiment, this will have a short term impact to provide a rebound. But since the environment does not offer an abundance of liquidity or growth remains weak, this rebound has lower probabilities of bringing bitcoin back to ATHs.
The bottom already priced despite everything?
Before confirming that the bottoms are already priced, it would also be necessary to consider that the environment and the conditions are favorable to its evolution over time. For now, the environment for a sustainable bullrun is not present. Even though bitcoin has already priced a lot of bad news so far, marking a support level, it lacks an environment to help it move into ATHs. In addition, an environment with less liquidity can quickly weaken movements.
Ideally, to have a very long-term confirmation, one would need either a source of liquidity via monetary or fiscal policy, or a good source of economic growth with a parallel technical close above the 10-month moving average.
How to juggle in this environment?
Beyond the question of determining the bottom, it is also interesting to see the long-term price, bitcoin has nevertheless already lost more than 60% since its last highs. Therefore, it becomes attractive in terms of price even if certain conditions are not all present.
Just because bitcoin might make a low or retest recent lows doesn’t mean the current price on a distant horizon is bad. If the investment objective is on a long-term horizon, it may be advantageous to practice DCA during these more fragile periods. The goal is not to find the bottom but to have an average and smooth price over the long term.
Until then, as the conditions are still not the most favorable, it is still too early to say that the bottom is behind us. Ideally, the monthly technical close should be confirmed with the added bonus of a favorable environment for a bullrun to ATHs. Meanwhile, this does not prevent the price from moving in certain areas or being a decent price in the long run.
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