Is Now a Good Time to Buy Bitcoin?
Bitcoin seems to be starting the year positively, up 1.23% in 2023 as of 5 January. However, historical data reveals BTC often suffers at the start of a new year. Since 2014, the bitcoin price has fallen in January six out of nine times (66%) – a bias for negative returns. More worryingly, a negative correlation to the dollar also puts crypto at risk in January.
The FTX Collapse: Catalyst for a BTC Price Crash
The most recent event to impact the BTC price was the spectacular collapse of crypto exchange FTX. The coin had traded in a tight range between $18,500 and $20,000 during September and October 2022. However, it fell 26% as news of the collapse emerged. Down 16.6% in the last six months, BTC performance has also departed from that of other risk assets. For example, the S&P 500 is up 0.6% over the previous six months, as of 5 January 2022.
Higher Interest Rates: A Worrying Backdrop for Bitcoin
However, even the recent FTX chaos fails to detract from the longer-term decline in crypto markets. Since its all-time high of $68,789 on 12 November 2021, bitcoin has fallen 75%. Likewise, ethereum – the other major player in the crypto space – is down 75% from its 2021 high of $4,891. These declines follow the broader selloff this year, which has extended across equities, bonds, and real estate.
The generic risk-asset rout began at the end of 2021. Central banks are largely to blame as they raise interest rates to reduce demand in overheating economies following the pandemic stimulus. By December 2022, the Federal Reserve (Fed) had raised its policy rate to the highest level in 15 years, capping off four 75bp hikes with another 50bp hike at the end of the year.
The presser was hawkish with Chair Jerome Powell ruling out an increase in inflation target anytime soon and leaving open the possibility of further increases in the terminal federal funds rate (FFR). Looking forward, we believe the market is under-pricing the terminal and end-2023 FFR.
Moreover, there are ongoing fears that the effects of high inflation and rising interest rates will plunge the world into a recession. Our recession probability indicator remains over 80%. Bitcoin is yet to experience a serious global recession, but we expect one would limit any potential upside in price action. This is because during times of economic uncertainty and weak growth, investors may be more inclined to sell risky assets like bitcoin and seek safer investments such as government bonds.
The global backdrop of rising interest rates should sustain the risk-off momentum in the near term. For bitcoin, meanwhile, if the price drops further below current levels, we could see it reaching $8,250. Amid recession risks in the US and most of the West, plus an energy crisis in Europe, things are not looking great for bitcoin.
Should you buy BTC now? The quick answer is ‘probably not’. The macro backdrop for bitcoin is bearish. We analyse various on-chain/flow metrics for bitcoin, which are very bearish. So, overall, we are neutral to slightly bearish. Therefore, if you have a two-to-four-week horizon, now may not be the best time to buy bitcoin.
Should I Buy BTC Now? Probably Not
Why Has the BTC Price Dropped?
Macro Reasons for the Current Bitcoin Price
Crypto markets almost looked like they had partial immunity from the tech sell-off and growing risk aversion. But recent price action has put paid to that notion. The relative stability of bitcoin between mid-January and mid-April, when it choppily trended up with higher highs and higher lows, was simply the calm before the storm. Bitcoin is down 75% since its November 2022 high of $68,789 (Below is a BTC price chart showing the current bitcoin price). And there is likely more to come.
The crux of the matter is that US interest rates are rising. Years of low interest rates since the global financial crisis in 2008 have seen markets reach extreme valuations. Who cares if tech companies are loss-making if the companies can borrow easily? And if companies cannot borrow money, they can attract capital from investors, who themselves have likely borrowed money.
Crypto markets have not been immune to the support from cheap leverage in the fiat markets. After all, crypto offers the tech dream of scalability and regulatory arbitrage. And if there was any doubt that crypto was not benefiting from low interest rates then the recent declines in crypto as US rates have risen should remove it.
Furthermore, the correlation of bitcoin to NASDAQ started to increase sharply just as US interest rates started to rise. This is a common occurrence throughout history. When the liquidity tap turns off, usually by central banks raising rates, the correlation between diverse assets shoots up. This time appears no different.
How Low Can Bitcoin Prices Go?
One exercise is to see how low prices could get were the NASDAQ to suffer a 2000-style crash. After all, earlier in 2021, the bitcoin and NASDAQ cor
Đăng nhận xét