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why is crypto down today

Bitcoin price correction was overdue — Analysts outline why the end of 2023 will be bullish

BTC and the crypto market will continue to battle with strong headwinds, but analysts explain why Q3 and Q4 of 2023 could turn out well for Bitcoin.

Bitcoin (BTC) price and the wider crypto market corrected at the start of this week, giving back a small portion of the gains accrued in January, but it’s safe to say that the more experienced traders expected some sort of technical correction. 

What was unexpected was the SEC’s Feb. 9 enforcement against Kraken exchange and the regulator’s announcement that staking-as-service programs are unregulated securities. The crypto market sold-off on the news and given Kraken’s decision to close up 100% of its staking services, traders are concerned that Coinbase will eventually be forced to do the same.

The real question is, does this week’s price action reflect a change in the trend of bullish momentum seen throughout January, or is the “staking services are unregistered securities” news a simple blip that traders will disregard in the coming weeks?

According to analysts at analytics firm Delphi Digital, crypto is set up for a “roller coaster ride in 2023.” Analysts Kevin Kelly and Jason Pagoulatos explained the start of the year price action as being fueled by “recent increases in global liquidity” which are favorable to risk assets, but both agree that macroeconomic headwinds will continue to negatively impact markets until at least the third quarter of 2023.

Major asset classes year-to-date normalized % change. Source: Delphi Digital

Beyond the negative news of this week and its impact on crypto prices, there are a handful of metrics that provide some insight into how the rest of the year could be for the crypto market.

DXY comes back to life

The US Dollar index has rebounded from its recent lows, a point highlighted by Cointelegraph newsletter author Big Smokey.

In a recent post, Big Smokey said:

“December’s below expectation CPI print and the upcoming February FOMC and interest rate hike clearly provided the necessary investor sentiment boost to push prices through what had been a sticky zone for months.

But, as shown below, BTC’s inverse correlation with the U.S. dollar index (DXY) says it all. Recently, DXY has been losing ground, pulling back from a September 2022 high at 114 to the current 101. As is custom, as DXY pulled back, BTC price amped up.”

BTC and DXY weekly price action. Source: Trading View

Taking a look at DXY this week, one will note that DXY rebounded off its Jan. 30 low at 101 and reached a 5 week high near 104. Like clockwork, BTC topped out at $24,200 and began to rollover as DXY surged.

DXY. 1-week chart. Source: TradingView

According to JLabs analyst JJ the Janitor:

“How DXY fares after retesting the 50-, 100-, and 200-day MAs in the weeks to come will provide us much insight into the market’s next move…If it breaks through and holds above its 200-day MA (currently at ~106.45), asset markets will indeed become bearish again, and we could expect November’s lows to be threatened. However, should this DXY back-test fail, either now (at the 50-day) or later, we can take it as confirmation that we have entered into a new macro environment. One where the strong dollar that terrorized us in 2022 is now a neutered beast.”

The Fed pivot takes way longer than investors expect

For months retail and institutional traders have prophesied an eventual pivot from the U.S. Federal Reserve on its interest rate hike and quantitative tightening policies. Some seem to interpret the shrinking size of the recent, and future rate hikes as confirmation of their prophecy, but in the last FOMC presser, Powell hinted at the need for future rate hikes and while speaking to David Rubenstein during a open interview at the Economic Club of Washington, Powell said:

“We think we are going to need to do further rate increases,” primarily because according to Powell, “The labor market is extraordinarily strong.”

According to Delphi Digital analysis, market participants are “playing chicken with the Fed trying to call their bluff” and the analysts suggest that data shows the bond market is signaling that the Fed’s policy too firm.

Generally, equities and crypto markets have rallied when FOMC decisions on rate hikes align with that of market participants for anyone who was breathing and following crypto markets in 2022 will remember that everyone and their mother was waiting for Powell to pivot before going ultra long on large cap cryptocurrencies.

From the vantage point of technical analysis, a retest of underlying support in the $20,000 zone is not a wild expectation, especially after a 40%+ monthly rally from BTC in January.

Based off historical data and fractal analysis, Delphi Digital analysts suggest that there is room for further upside from BTC as “there isn’t a lot of overhead supply for BTC in the $24K - $28K range” and earlier reporting from Cointelegraph highlighted the importance of Bitcoin’s recent golden cross.

While this is all encouraging in the short-term, the reality of certain CPI components remaining sticky and Powell seeing a need for further interest rate hikes due to the strength of the labor market should be a reminder that crypto is not yet in bull market territory. Interest rate hikes increase operational and capital costs for businesses and these increases always trickle down to the consumer. Another consistent and alarming development is the continuance of layoffs in big tech companies.

Banks and major U.S. brokerages continue to spin down their earnings estimates and big tech has a way of being the canary in the coal mine for equities markets, earnings and the rate of layoffs taking place. The high correlation between equities markets and Bitcoin, along with concerning macroeconomic hurdles suggest that there is an expiration date on crypto’s recent mini bull market and investors would do well to keep this front of mind.

If the long-awaited “Fed pivot” continues to remain elusive, certain realities will come to the forefront and they are bound to have a stronger impact on pricing in the crypto and equities markets.

Related: SEC enforcement against Kraken opens doors for Lido, Frax and Rocket Pool

Looking deeper into 2023

Despite the more bearish nature of the challenges listed above, Delphi Digital analysts issued a more positive outlook for the bottom half of 2023. According to their analysis:

“The need for liquidity expansion will become more pressing as the year progresses. Cracks in the labor market will also become more apparent, which will give the Fed cover for a shift towards more accommodative policy. The reversal in Global Liquidity we cited at the end of last year will start to accelerate in response to a weaker growth outlook and concerns over growing fragilities in sovereign debt markets, acting as support for risk assets in 2H 2023. The impact of changes in global liquidity on financial markets tends to lag anywhere from 6-18 months, setting up a more optimistic outlook for 2024-2025.”

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Sui, Franklin Templeton launch ecosystem partnership

Bitcoin prepares for CPI showdown as BTC price dips below $19K cost basis

BTC price performance declines in line with U.S. equities ahead of classic volatility engendered by CPI data.

Bitcoin (BTC) followed analysts’ predictions with sideways action continuing near $19,000 at the Oct. 11 Wall Street open.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

Bitcoin price follows stocks downhill

Data from Cointelegraph Markets Pro and TradingView followed BTC/USD as the pair sat at important support ahead of fresh macro triggers.

Brief dips below the $19,000 mark the day prior had been short lived, with sellers subsequently returning in an attempt to effect a deeper downtrend.

The largest cryptocurrency thus looked to be waiting for external catalysts to determine the price trajectory, these due to begin in earnest from Oct. 12 with the United States releasing economic performance figures.

Oct. 13 remained the key date, however, with the Consumer Price Index (CPI) print for September due.

“As expected, with little to no crypto narrative to follow, crypto has been driven purely by macro forces,” trading platform QCP Capital wrote in its latest market update to Telegram channel subscribers on the day.

“In that regard, all eyes are on the Fed and by extension on CPI print this Thursday, where uncertainty remains high.”

QCP added that the crypto market correlation to traditional risk assets had reached new all-time highs, while against the U.S. dollar, the inverse correlation was also higher than ever before.

The U.S. dollar index (DXY) continued reclaiming lost ground on the day, eyeing $113.30, while in the first hour’s trading, the S&P 500 and Nasdaq Composite Index were down 1.2% and 1.6%, respectively.

U.S. dollar index (DXY) 1-day candle chart. Source: TradingView

“Ultimately, as the liquidity tap is tightened fully, core CPI remains sticky above target, and geopolitical risks start to weight in more, Q4 will definitely be more challenging,” QCP concluded about the broader outlook.

"Final bottoming out phase" for BTC

Outside short-term price action, the debate over how and when Bitcoin would put in a macro bottom continued.

Related: Biggest mining difficulty spike in 14 months — 5 things to know in Bitcoin this week

This time, it was popular trader and analyst Rekt Capital looking to past halving cycles to determine the timing.

As Cointelegraph reported earlier, current perspectives include the belief that June’s $17,600 reversal marked the macro price floor.

BTC/USD annotated chart. Source: Rekt Capital/ Twitter

“According the Three Macro Triangles, BTC is now in the Final Bottoming Out phase in an effort to form a generational Bear Market bottom,” Rekt Capital commented alongside a comparative chart.

A bottom in Q4 would be chronologically right on schedule, with the prior cycle floor coming in December 2018.

On the way down, meanwhile, analysis is eyeing significant support at Bitcoin’s investor cost basis at $19,000, along with whales’ cost basis at $15,800.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Sui, Franklin Templeton launch ecosystem partnership

Why is the crypto market down today?

Crypto prices keep crashing, and it seems like there’s no bottom in sight. Here are three reasons why cryptocurrency prices keep falling.

Crypto prices keep falling, but why? This year’s market crash has turned most winning portfolios into net losers, and new investors are probably losing hope in Bitcoin (BTC).

Investors know that cryptocurrencies exhibit higher than average volatility, but this year’s drawdown has been extreme. After hitting a stratospheric all-time high at $69,400, Bitcoin price crumbled over the next 11 months to an unexpected yearly low at $17,600.

That’s a nearly 75% drawdown in value.

Ether (ETH), the largest altcoin by market capitalization, also saw an 82% correction as its price tumbled from $4,800 to $900 in seven months.

Years of historical data show that drawdowns in the 55%–85% range are the norm after parabolic bull market rallies, but the factors weighing on crypto prices today differ from those that triggered sell-offs in the past.

At the moment, investor sentiment remains soft as investors avoid risk and wait to see whether the Federal Reserve’s current monetary policy will alleviate persistently high inflation in the United States. On Sept. 21, Fed Chair Jerome Powell announced a 0.75% interest rate hike and hinted that similar-size hikes would occur until inflation drops closer to the central bank’s 2% target.

Let’s take a deeper look at three reasons why crypto prices keep falling in 2022.

Federal Reserve interest rate hikes

Raising interest rates increases the cost of borrowing money for consumers and businesses. This has the knock-on effect of raising business operational costs, the costs of goods and services, production costs, wages, and eventually, the cost of nearly everything.

High, unsupressable inflation is the primary reason the United States Federal Reserve is raising interest rates. And since rate hikes began in March 2022, Bitcoin and the broader crypto market have been in a correction.

When monetary policy or metrics that measure the strength of the economy shift, risk assets tend to signal, or move, earlier than equities. In 2021, the Fed started signaling its plans to raise interest rates eventually, and data shows Bitcoin price sharply correcting by December 2021. In a way, Bitcoin and Ethereum were the canaries in the coal mine that signaled what lay ahead for equities markets.

If inflation begins to taper, the health of the economy improves, or the Fed begins to signal a pivot in its current monetary policy, risk assets like Bitcoin and altcoins could again be the “canaries in the coal mine” by reflecting the return of risk-on sentiment from investors.

The persistent threat of regulation

The cryptocurrency industry and regulators have a long history of not getting along either due to various misconceptions or mistrust over the actual use case of digital assets. Without a working framework for crypto sector regulation, different countries and states have a plethora of conflicting policies on how cryptocurrencies are classified as assets and precisely what constitutes a legal payment system.

The lack of clarity on this matter weighs on growth and innovation within the sector, and many analysts believe that the mainstreaming of cryptocurrencies cannot happen until a more universally agreed upon and understood set of laws is enacted.

Risk assets are heavily impacted by investor sentiment, and this trend extends to Bitcoin and altcoins. To date, the threat of unfriendly cryptocurrency regulations or, in the worst case, an outright ban continues to impact crypto prices on a nearly monthly basis.

Scams and Ponzis triggered liquidations and repeat blows to investor confidence

Scams, Ponzi schemes and sharp market volatility have also played a significant role in crypto prices crashing throughout 2022. Bad news and events that compromise market liquidity tend to cause catastrophic outcomes due to the lack of regulation, the youth of the cryptocurrency industry and the market being relatively small compared with equities markets.

The implosion of Terra’s LUNA and Celsius Network as well as misuse of leverage and client funds by Three Arrows Capital (3AC) were each responsible for successive blows to asset prices within the crypto market. Bitcoin is currently the largest asset by market capitalization in the sector, and historically, altcoin prices tend to follow whichever direction BTC price goes.

As the Terra and LUNA ecosystem collapsed on itself, Bitcoin price corrected sharply due to multiple liquidations occurring within Terra — and investor sentiment tanked.

The same happened with even greater magnitude when Voyager, 3AC and Celsius collapsed, erasing tens of billions in investor and protocol funds.

Related: Wen moon? Probably not soon: Why Bitcoin traders should make friends with the trend

What to expect for the rest of 2022 through 2023

The factors impacting falling prices within the crypto market are driven by Federal Reserve policy, meaning the Fed’s power to raise, pause or lower rates will continue to have a direct impact on Bitcoin price, ETH price and altcoin prices.

In the meantime, investors’ appetite for risk is likely to remain muted, and potential crypto traders might consider waiting for signs that U.S. inflation has peaked and for the Federal Reserve to begin using language that is indicative of a policy pivot.

Disclaimer. Cointelegraph does not endorse any content of product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.

Sui, Franklin Templeton launch ecosystem partnership