Bitcoin (BTC) could still face “considerable danger” this year, as macroeconomic conditions dictate price action.
This is the opinion of economist Lyn Alden, who in a commentary shared with Cointelegraph warns that Bitcoin remains bullish following recent gains.
Alden: BTC bottom is a “process”
Optimism is rising across the crypto sphere as BTC/USD largely maintains levels 40% higher than YTD.
However, what the rest of 2023 may hold is still a matter of debate and Alden suggests it is naïve to assume that the good weather will continue unchecked.
The reason, according to him, is to be found in US lawmakers and the Federal Reserve.
“I expect BTC bottom to be a process”summarizes Alden about the current state of Bitcoin.
“BTC prices correlate strongly with liquidity conditions, and liquidity conditions have improved since Q4 2022.”
This recovery has effectively erased any traces of FTX failure from the chart, with BTC/USD now hovering at its highest levels since mid-August.
“The FTX/Alameda crash sent the sector tumbling in the second half of the fourth quarter, even as many other assets recovered (stocks, gold, etc.), and now it seems that BTC is recovering a bit, back to the point where it would have been without the collapse of FTX/Alameda”continues Alden.
At the time of writing, Cointelegraph Markets Pro and TradingView are reporting $22,600 on BTC/USD.
“Considerable Danger Ahead”
However, what may await us beyond this “recovery” may be less than pleasing to the bulls.
Related: BTC Benchmark Leaving Capitulation Area: Five Things to Watch Out For
The Fed is currently conducting quantitative tightening (QT), removing liquidity from the economy to fight inflation after several years of massive liquidity injections that began in March 2020.
The situation is easing thanks to US domestic politics, but later the status quo could return to the restrictive climate seen during the last year of the Bitcoin bear market.
“There is considerable danger for the second half of 2023”Alden explains.
“Liquidity conditions are good right now, in part because the US Treasury is reducing its cash balance to avoid going over the debt ceiling, and this is pushing liquidity into the financial system. The Treasury has therefore offset some of the Federal Reserve’s QT. Once the debt ceiling issue is resolved, the Treasury will refill its cash account, drawing liquidity out of the system. At which point, both the Treasury and the Fed will suck liquidity out of the system and this it would create a moment of vulnerability for risk assets in general, including BTC.”
If the second half of the year turns out to be decisive for Bitcoin, it would coincide with several shared warnings from analysts regarding 2023.
As Cointelegraph reported, Arthur Hayes, former CEO of the BitMEX exchange, proposes a much more negative forecast for the current yearalso thanks to the Fed’s policy.
Longer-term, however, Alden is confident that Bitcoin will definitely recover from its recent lows.
“I think this is a deep value accumulation zone for BTC in a 3-5 year perspective, but traders should be aware of liquidity risks in the second half of this year”conclude.
The views, thoughts and opinions expressed herein are those of the authors only and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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