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After 39% Gain in Jan, Bitcoin Waits For Fed

After 39% January gains, Bitcoin faces Fed uncertainty. A 50 bps Fed hike could be disastrous for crypto. The bear market could be in its later stages.

February 1st, 2023 - January closed with Bitcoin’s second best performance for this month on record with 39% gain. The main cryptocurrency sustained the US$23k price level over 24h, while the market waits for the Fed’s decision later today. A 25 bps hike is the default expectation among market participants. However, there are still some analysts seeing a 50 bps hike, which could be a massive disappointment for the market. According to Jeremy Siegel, the Wharton School of Business Professor, it would be a disaster if the Fed increases rates by 50 bps because it would indicate that Fed’s previous hikes have not been working. We tend to agree that such let down could trigger a sell-off of risk assets, but not as drastic as the professor suggests.

If the Fed confirms the market expectations today, some analysts and research firms believe that the bear market is behind us, and an even greater performance for Bitcoin would lie ahead. A popular crypto analyst, Benjamin Cowen, highlights that the Bitcoin’s 50-week moving average and the 200-week moving average are converging to the US$25k price level. The same conditions occurred in 2019 taking the Bitcoin price to ~US$15k from ~US$6k. In a longer time frame, Markus Thielen, head of research at Matrixport, sees Bitcoin price reaching US$45k by the end of year. Thielen sees the 2023 bull market driven by the expected March 2024 bitcoin halving cycle. He also points out that the only year that Bitcoin declined after a strong January was 2014, just after a bull-market peak.

Despite the optimism, the crypto market is not out of the woods yet, as some analysts argue that there could be an increased volatility in the first half of 2023 until a bull market fully materializes. However, Glassnode, a on-chain services and research provider, suggested that short-term holders (STH) of Bitcoin are selling now at profit while long-term holders (LTH) continue to hold massive positions, which analysts see as bullish. On top of that, on-chain flows show miners transferring less Bitcoins to exchanges has significantly declined. All in all, we expect a positive reaction from the market to a 25 bps rate hike today by the Fed, which could trigger another rally, putting the bear market in the rear view mirror.

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