While the year 2022 was centered on the theme of fundamental anxiety around inflation and rising interest rates, it is the theme of recession that will occupy the media space in 2023. What future development can we expect from the price of bitcoin if the Western economy enters a major economic recession?
Can Bitcoin be a financial haven in an economic downturn?
We are finally in 2023 and it was time to move on to the crypto market which shed more than 65% of its value last year. Unfortunately, the price of bitcoin did not act as a hedge against galloping inflation, in fact the opposite happened.
Central banks adopted an arch-restrictive monetary policy to curb the vertical boom in the price regime, which entailed a significant increase in bond yields, a fundamental factor that produced a bearish effect on the crypto market value.
Bitcoin has never been, is not and never will be a financial asset for inflation hedging.
Inflation and rising interest rates were the dominant fundamental pair last year, and while both will remain important in 2023, it is now the likelihood of an economic recession that is taking center stage.
What behavior can be expected of the price of bitcoin during a major economic recession? It is difficult to give a statistical answer, because the lifetime of BTC does not exceed 13 years, only two instances of recession are present:
- The financial crisis of 2008/2009 (the birth of BTC);
- The health crisis of 2020.
Overall, in times of recession, it is the trend of the stock market and the US dollar on Forex that can affect the dynamics of cryptos. It seems presumptuous to me to think that cryptos can be a safe haven in the event of negative economic growth.
To envision the end of the crypto bear market in 2023, the global economy would have to offer a “soft landing” type of economic framework. Below is a table summarizing the future development of BTC in 2023, depending on the potential macroeconomic framework.
Table proposing the status of certain global macro criteria according to the future economic framework for 2023
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Technical analysis points to a return to volatility in early January
Now back to the technical analysis of bitcoin price. The dominant technical factor remains the bearish technical breakout in early November last year in the wake of the FTX affair. The market remains in a bearish trend as long as it holds the major technical resistance at $19/20K and the natural technical target is still established at $11/12K, a price level that I have described in my previous analysis techniques posted in the columns by Cryptoast.
The current stabilization period at $16,000 has a technical source, this is the 50% retracement ratio of the entire bullish phase that was built between the health crisis low and the November 2021 all-time high.
On the other hand, there are bullish technical divergences (see chart below) and they maintain the balance of technical forces between the following two scenarios:
- The continuation of the downtrend towards the $11/12K support zone;
- Reintegration with volume of 19/20K$.
Measurement of short-term volatility (the 7-day one) hits a major support, the market will make its technical choice in the first half of January.
Chart revealing Japanese candlesticks in weekly data from Grayscale’s Bitcoin background
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Vincent Ganne analyzes the crypto markets every day on our Premium group
Source: Vincent Ganne
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