Three reasons for the growth of bitcoin
The crypto market in January 2023 shows rapid growth. Compared to the beginning of the year, the cost of bitcoin has already added about 40%, with 10% just today. Currently, the cost of bitcoin is in the region of 23 thousand dollars. Ethereum, the second largest cryptocurrency in terms of capitalization, showed similar dynamics – its value also rose by almost 40% (including 6% today) – to about $1,650.
As a result, bitcoin has outperformed gold in the rate of appreciation, and is now showing a sharp reversal after falling more than 60% in 2022. But is it possible to talk about the end of the “crypto winter”, or is the current growth only local?
Three reasons for growth
The first reason is psychological, believes Ivona Gutovich, COO of Green Crypto Processing.
“The growth is primarily due to the psychological factor of the absence of any negative news. Restrained optimism and increased riskiness returned to the markets. Over the past two weeks, all assets have been growing – oil, gold, silver, rare earth metals, major currencies against the dollar, the SandP-500 index, ”the expert commented to Finam.ru.
The decline in inflation in the US
The second reason is the decline in inflation in the US, says Alan Sikter, senior analyst at Best Crypto Traders.
“After analyzing the situation, based on historical data, the main reason for the recent growth can be considered the published inflation data in the US for December. Investors always react to this kind of information by buying or selling high-risk assets like cryptocurrencies,” he stressed, answering questions from Finam.ru.
The inflation factor is also mentioned by the chief executive officer of the DeFi Oasis capital management protocol, Chris Bradbury, quoted by Yahoo Finance. According to him, inflation may have peaked in developed countries, and this is the main driver for cryptocurrencies and traditional markets. “It also appears that the expected recession this year will not be as deep as originally thought,” he added.
Another positive factor, Sikter called the unfreezing of $5 billion of liquid assets by the bankrupt FTX crypto exchange, which could reduce negative expectations from the future fate of many funds associated with them.
Don’t count on sustainable growth
Cryptocurrency, as the youngest and fastest instrument, in which the most risky and creative investors work, has not yet reached stability and is not ready for a sustainable bullish trend, warned Ivona Gutovich.
“Analyzing the market, we can say that this is not the beginning of a serious recovery, the fall was too deep. In the near future, bitcoin runs the risk of staying at the levels of 20-23 thousand dollars, and the ether may collapse below the level of $1300. Summarizing the above, the cryptocurrency has approached serious resistance levels. Further movement will depend on the general market situation,” she said.
A similar opinion is shared by Alan Sikter, who notes the absence of fundamental shifts in the crypto market.
“Despite the fact that the situation looks pretty good, as evidenced even by the “breakthrough” of the 200-day moving average, which adds confirmation of a global trend reversal. But fundamentally, there were no major shifts. If we talk about global market trends, then we expect a recovery not earlier than the middle of this year. Based on historical data, the stage of stagnation and accumulation in the crypto market usually takes one and a half to two years. At the current moment, about a year has passed since the beginning of the correction, ”Sikter shared his assessment.
In his opinion, it is likely that there will be no update of the lows of the current correction. “But we do not expect a transition to global growth at all. It is most likely that the market will continue to be in a flat for about 4-8 more months before the stage of stable growth begins. If we talk about the beginning of a confident long-term uptrend, then we do not expect a change in sentiment until the second half of the year. Then, if the stock markets begin their recovery in the first half of the year, by the fall of 2023, the same reversal will be possible in the crypto market. Without stabilization of the situation on the stock market, there is no need to talk about serious prospects for cryptocurrencies,” the expert added.
Sikter considers two alternative scenarios as the most likely in the current situation. In the first case, according to him, it is possible to continue growth to the level of $30,000 with further fixation in the range of $25-30,000 for several months. In the second case, the global downtrend may receive a new impetus, which will lead to a return of the price below $16,000. “Although even if the second option is implemented, the price will not collapse immediately, it is likely that the price will continue to be above $20,000 for several more weeks,” he said.
What events can collapse the crypto market again?
The crypto market is in a very precarious position with a limited inflow of new capital, so any noticeable event can push the price down, Sikter warned.
“Of the most likely risks, one can consider the potential emergence of new FTX bankruptcy episodes or those companies and funds that turned out to be associated with debt obligations. Another class of risks is associated with new possible arrests and blocking of resources related to cryptocurrencies. The recent episode with Bitzlato was called by the US authorities “the beginning of a sweep”, and how many such arrests there will be in the near future is unknown. All this negatively affects the expectations of investors,” the expert concluded.