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Some call it a crash but the point remains the same. The cryptocurrency market faced disaster in 2022, losing about 70% of its capitalization from its November 2021 highs. About $2 trillion was wiped out. Colossal losses. The Federal Reserve and the loss of confidence in the system dealt huge damage on Bitcoin and its peers. Will crypto-assets recover in 2023?
Investors have long categorized Bitcoin as a risky asset, so the Fed's tightening of monetary policy has been a guilty verdict for it. The central bank pumped financial markets with cheap liquidity in response to the 2020 pandemic-related recession, allowing BTCUSD to soar to all-time highs. However, the Fed's change of heart struck Bitcoin hard. Investors began to look for alternatives in bonds, whose yields were rising by leaps and bounds. Furthermore, serious cracks began to appear in the cryptosystem.
Bitcoin and U.S. Treasury bond yields and capitalization dynamics
It all started with the collapse of the Terra stablecoin and its associated Luna token, continued with the bankruptcies of hedge fund Three Arrows Capital, crypto lenders Celsius Network, Voyager Digital, and BlockFi, and ended at FTX. Sam Bankman-Fried's empire collapsed like a house of cards, he himself was accused of fraud, and the crypto industry was dealt such a serious blow. So it's a big question whether it can recover from it.
Until 2022, the main advantage of the cryptosystem was known to be its decentralization. It was said that no player could destabilize others, and no subject is responsible. This is in theory. In practice, it turned out that the digital money ecosystem is more interconnected and concentrated than its biggest players could have imagined. Previously, it was believed that cryptocurrencies, unlike traditional monetary units, do not depend on the monetary policy of central banks. Yes, they do! In fact, the Fed's actions affect the entire sector of risky assets. And Bitcoin is no exception.
What's in store for it in 2023? In fact, a weaker dollar and lower U.S. Treasury yields create a tailwind for cryptocurrencies. Such a backdrop is seen as positive in terms of risk appetite. Stock indexes are likely to rise, and BTCUSD will try to follow. Will it succeed? Everything will depend on the new turmoil the crypto industry may face. Trust is built over years but can be lost in minutes. Can crypto-assets rebuild that trust? Standard Chartered doesn't think so, as it expects Bitcoin to fall to $5,000. But what will actually happen?
Technically, there is a steady downtrend on the weekly chart of BTCUSD. The bulls' inability to storm dynamic resistances in the form of moving averages indicates their weakness. It would be best to sell in the direction of 15850 and 14735.
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