Youwei Yang, Ph.D. Chief Economist, Bit Mining Limited. (NYSE: BTCM)
Stocks continue to rally given the less worrying global macro condition due to the continuously declining U.S. CPI year-on-year growth and mildly strong labor market, as well as the recovery of the European economy and China’s grand re-opening. This provides a friendly environment for crypto assets to regain momentum. Bitcoin price has broken through and sustained the major resistance level of $21K and is now testing around $23K. It is possible to test $25K on Feb 1st if the Fed only raises interest rates by 25bps and is not so hawkish in their speech.
The January CPI number which will be announced on Feb. 14th could again be bullish as its year-on-year read can decrease to below 5.6% (my estimate), the first time back in the 5s in about a year and a half. And the February CPI number announced on Mar. 14th could even get to the 4s, which could cause the market to celebrate and continue its bullish track. This could see Bitcoin test $28K or even $31K.
However, the Fed and many other central banks will be more cautious than wall street and could potentially shock markets again and pour cold water on traders by saying 4.x% inflation may linger a while and it is still too far above their 2% inflation goal. The macro market is sitting on the edge of stagflation and recession, which could be worrisome if some unknown market shock leaks out, such as high consumer revolving credit causing problems, a real estate debt problem, a U.S. gov debt-ceiling crisis, or geopolitical concerns.
The $28-31K Bitcoin level translates to a $2,000-2200 level for ETH, the levels they were at prior to the Luna/UST crash in May of 2022. The Shanghai upgrade of Ethereum will likely take place in March 2023, and that could be a market pump opportunity as long as it doesn’t fail. As usual, its possible the situation could turn into a “buy the Rumor, sell the Fact” scenario.
Even though the FTX crash was very bad for the industry, damaging its reputation and hurting the market, it recently came to light that the exchange could possibly restart operations as some funds are recovered. This positive development adds to the upward momentum of the market.
However, the Genesis Bankruptcy and potential broader problem for DCG could lead to a domino effect in the Crypto universe that has the potential to be worse than the collapse of Terra or FTX. So a large amount of risk remains if these high-leverage players are not able to solve problems in the next few months. That could be an extra downward pressure force if the macro condition worsens beyond March.
Overall, I think the Fed is overestimating the problem because they acted slowly in 2021-22 and rose rates too late, thus they are extra careful in 2022-23; while wall street is underestimating the problem and is a bit too over-optimistic. So the market will be on the way to finding a balance in 2023 among the major forces. This could mean some shocks here and there, thus not going to be a one-directional market one way or another. And I see it more likely to be a gradual spiral upward for the year 2023, ahead of the possible bull in 2024-25 with macro easing and the Bitcoin Halving. When it comes to specific price levels of Crypto, we could possibly see 3-month micro cycles that play out in the following manner:
Jan-March: Bitcoin goes up to test $28-31K; April to June: something happens to shock and come back testing $18-21K; July-September sees BTC testing $31-35K; October to December: some last round of worries before the 2024 bull causes prices to re-test $21-23K; then we can enjoy $30K, $40K, $50K, $60K and higher in 2024 as the Fed starts cutting rates and risky assets gain favor.
All in all, the crypto market will be trading in a wide range of $20-30K in 2023 on a gradual upward trend.