Is it Too Late to Enter the Crypto Rally?

This article is sponsored by FBS.

Is 60% above the cycle’s low the point where the market ends its rally? The answer is not apparent, even for skilled crypto fellows. What’s next: another short squeeze for BTC to go to $30,000, or one more wave of crypto collapses that vanish bulls from the market?

In this article, analysts at FBS dive into BTC’s cyclical movements, some on-chain and technical analysis, as well as the economic environment, in an attempt to identify the current market stage and predict where BTC will go from here. 

Key Takeaways

1. The current state of the crypto market is mixed, with more regulatory concerns than in previous years, but it has fared much better thus far compared to late 2022, with no significant bankruptcies yet in 2023.
2. The US SEC could pose a significant threat to the crypto market, launching regulatory missiles into everything it can reach, starting with the Ripple case, which is seen as one of the crucial legislative battles in crypto.
3. Technical analysis has shown a first-ever weekly Death Cross in BTC’s history, which in traditional markets has usually been the first signs of an impending bear market.
4. The macroeconomic environment presents various risks and uncertainties, including a possible recession in the world economy and stubbornly high inflation. The US Federal Reserve is currently combating domestic inflation by hiking interest rates and shrinking its balance sheet, meaning less liquidity for risk-on assets such as Bitcoin.
5. While there are bullish signals, such as on-chain analysis showing the end of miners’ capitulation and the cyclical patterns which have yet to be broken, there are still plenty of challenges left to overcome.

Crypto Market Overview

To get an overview of the crypto market, here’s the summary of 2023 so far:

• The US SEC has gone after BUSD, previously the third biggest stablecoin on the market, and its issuer Paxos, insisting that BUSD is an unregistered security.

• Binance, the primary user of BUSD, said it would support the stablecoin for as long as needed. The stablecoin has lost more than $7 billion in market cap since the SEC issued a Wells Notice to Paxos.

• Paxos agreed to cooperate with the SEC, pausing the creation of more BUSD.

• Tether, the largest stablecoin on the market, gained more than $2 billion in market cap, surging above t$70 billion.

• Kraken, one of the largest global crypto exchanges, agreed to stop offering its staking program in the US and paid $30 million to settle a case with the SEC.

• Ethereum is planning to roll out its Shanghai update, which will enable the withdrawal of staked ETH.

• Coinbase reported a net loss of $2.6 billion in 2022.

• Coinbase launched the “Base” L2 blockchain on the Optimism protocol. It won’t have a separate token.

• Over 18 months, the four most active Bitcoin developers have stepped down from their roles as core contributors. The last one to resign was Marko Falke. 

• Total value locked (TVL) in DeFi is up 37% this year, edging to just below $50billion.

• Hong Kong announced ambitions to establish itself as the next crypto hub.

• Binance minted $130M in TrueUSD, making it the 5th largest stablecoin. 

The news is as mixed as possible, with regulatory challenges being more at the forefront compared to years before. Still, the current state of the market is far better than it was in late 2022, as we have not witnessed any significant collapses as of yet.

The Bearish Case

This section examines what may prevent crypto from regaining its lost momentum and what will soon affect it. Here, you’ll find that the macroeconomic environment continues to look bleak, coupled with growing regulatory pressure, as well as some technical analysis to paint a possible bearish scenario of what may happen to the price of BTC.

Regulation

The main threat comes from the SEC, which has ramped up its regulatory efforts into everything it can reach within the crypto space – starting from the good old Ripple case that is symbolic of the fight between crypto and traditional finance. To summarize, the SEC sued Ripple in 2020, accusing the company of failing to register $1.4 billion worth of XRP as securities. Ripple maintains the position that tokens that are used as a form of payment can’t be classified as a security.

The lawsuit is one of the most crucial fights between the regulator and a crypto project. Should Ripple be defeated in court, the entire crypto industry may possibly face an unprecedented amount of regulatory action as the SEC may be able to claim that 2/3 of the market is made up of “unregistered securities,”

Even stablecoins have found themselves in the cross-hairs of the SEC. Recently, the SEC issued a Wells Notice to Paxos, notifying the company that it is considering enforcement action against the company for not registering BUSD as a security. Crypto natives have argued that a stablecoin can’t be an unregistered security if it doesn’t even pay a return. Yet, the SEC remains adamant. 

Technical Analysis

From a technical analysis perspective, it may be easier to see why Bitcoin might retrace its 2023 runup. Simply by observing the weekly chart, we can find the first-ever weekly Death Cross for Bitcoin. For those who are unaware, the so-called “Death Cross” occurs when the 50 and 200-week moving averages intersect.

Source: TradingView (BTC/USD, weekly timeframe)

Historically, the predictive record of the “death cross” is mostly mixed, though those convinced of the pattern’s predictive power note the death cross preceded all the severe bear markets of the past century, including 1929, 1938, 1974, and 2008. In other instances, it has been followed by above-average short-term returns. In any case, a “death cross” is a sign of short-term price weakness, and traders may sleep better if the price of Bitcoin can rise above both moving averages as soon as possible. 

Besides that, seeing Bitcoin under the 200-week moving average for so long is rather uncommon. In fact, it’s the first time that BTC has manifested such a bearish move. Most ‘buy-the-dip’ guys will usually say – “The best time to buy is now”, but after two hundred and sixty days under the 200-week MA, is it merely a phase for accumulation or a retest before the plunge?

Source: TradingView (BTC/USD, weekly timeframe)

Macroeconomic Events

While there have been encouraging developments in crypto throughout the past year, the same risks and uncertainties still exist. One of the most significant risks is recession in the global economy. The US economy grew at a 2.7% annual rate in the final three months of 2022,  less than the previous estimate of 2.9% growth in the quarter. As economic growth begins to falter, inflation is still here and far from the Fed’s 2% target, reinforcing their stance on extending rate hikes and reducing the Fed balance sheet. As far as they’re concerned, that’s the only way to calm down rising prices.

Source: TradingEconomics (US GDP Growth Rate)

The Fed’s moves to combat inflation have meant higher rates, a shrinking Fed balance sheet, and a stronger US dollar. In other words, there will be less liquidity in the market for risky assets such as Bitcoin and crypto.

However, the Fed remains optimistic about achieving a ‘soft landing’ by moderating inflation without a recession, which hopefully means the economy won’t suffer for long. Alas, the fundamental question remains whether the US economy is able to withstand several trillion dollars in liquidity from the Fed and come out unscathed.

The Bullish Case

The good news is that outside of the US, more countries have been more positive in supporting cryptocurrency adoption. Moreover, there may be extra liquidity coming from China.The world’s second largest economy is finally in the midst of re-opening its economy after a long battle with COVID19. In sharp contrast with the US, the Chinese government has begun to deploy stimulus packages into its economy to restart growth, and some of this capital injection may well flow into crypto. 

Two years after China banned crypto, the stance on crypto seems to have shifted slightly, at least in Hong Kong. Hong Kong is already looking to form a task force bringing together policymakers, regulators, and crypto industry players to set the agenda for its Web3 ambitions. The opportunity to take away the US’ position at the forefront of the Web3 economy may very well be the sole motivation behind this endeavor.

On-chain Crypto Analysis

Over on the blockchain, there is a lot of good news too! First, Bitcoin is still moving within its famous four-year cycle. Despite the bullish market weakening towards the end of each cycle, it still provided hundreds of investing opportunities, new trends, and billions in trading volume. 

Although it seems as if the bearish market may be over, the crypto industry may be entering a ‘kangaroo market’ with Bitcoin bouncing between a massive price range. The current state of the market may last for another year until the next halving on March 18, 2024. However, that’s merely a short-term view. Instead, let’s zoom out and look for mid-term trends.

According to Santiment, the market has seen an increase in small wallets (holding 10-100 BTC), but larger wallets (1K-10K) are beginning to liquidate their assets, with weekly outflows of up to $62M in February. This may show that whales are unsure whether the current uptrend will continue.

Source: Santiment

Furthermore, average funding rates across all exchanges have reached dangerous levels, meaning more traders are anticipating Bitcoin to move upward in the short term. Although the correction of the current uptrend has yet to end, it would seem as though buyers are rushing in rather than waiting and watching from the sidelines. 

Source: bant.pro

The capitulation of Bitcoin miners may also be over, with the Hash Ribbon indicator showing almost no red lines. When this shift occurs, historically, it has indicated a switch from negative to positive price momentum.

Source: Glassnode

To wrap up this section, it is possible, based on FBS’ analysis, that Bitcoin has yet to complete its uptrend that started at $15,700. However, prices may decrease before that, allowing funding rates to cool off before preparing for another leap.

To What Price? 

To dive deeper into where the price action might lead us, let’s check the chart. Through technical analysis, FBS analysts placed two resistance lines on previous highs and lows. Along those two lines, they projected the usual trend reversal pattern, an inversed Head and Shoulders (HaS). Ultimately, the analysis showed that Bitcoin has barely scraped the first zone of resistance. Also, BTC looks like it’s trying to form a smaller inverse HaS.

Source: TradingView (BTC/USD, weekly timeframe)

In FBS’s view, there could be a bullish swing on the horizon in the event of a breakout. However in the short term, Bitcoin still needs to overcome the resistance at $25,200. 

Source: TradingView (BTC/USD, weekly timeframe)

On the other hand, if the price manages to break out of its current range, BTC could experience a significant jump in prices. However, substantial trading volume is often required for the price to break through the resistance zone and climb even higher. As such, further crypto adoption and development, alongside a favorable macroeconomic outlook, is sorely needed for this to become a possibility.

Conclusion

In conclusion, the current state of the cryptocurrency market is a mixed bag, with both positive and negative developments. Regulatory pressures from the SEC, together with macroeconomic events, are the key factors affecting the market. There are concerns over regulatory pressure and the possibility of Ripple losing its lawsuit against the SEC, which could lead to increased regulatory scrutiny on cryptocurrencies beyond what we’ve seen in the past.

Additionally, technical analysis has shown the first-ever weekly Death Cross in Bitcoin’s history, which historically has not boded well for markets. The macroeconomic environment has also remained challenging, with fears of an impending recession in the global economy, sticky inflation, and the need for the Fed to continue hiking rates and reducing the balance sheet.

While there are some slivers of hope, such as on-chain analysis showing that miners have stopped selling, along with cyclical patterns which haven’t been broken, there is a long and challenging road ahead for the crypto industry. During these times, it is best to be cautious when entering the market and conduct proper research before making investment decisions.

The FBS CFD-trading platform is the brainchild of investors from Western Europe interested in trading research and technical analysis. Founded in 2009, FBS had to provide global markets with transparent and trusted applications for professional and semi-professional CFD traders.

Today, FBS is an international brand present in over 150 countries. The brand unites several independent companies offering their clients opportunities to trade Margin FX and CFDs.

The companies include FBS Markets Inc. (licensed by IFSC), Tradestone Ltd. (licensed by CySEC), Intelligent Financial Markets Pty Ltd. (licensed by ASIC), and TRADE STONE SA (PTY) LTD. (licensed by FSCA).

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