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Volatility Came Back on Wednesday

Bitcoin resumes volatility on Wednesday. Bitcoin price could reach US$30k. Arizona could make crypto legal. %

January 26, 2023 - The volatility returned to crypto markets on Wednesday, with Bitcoin price ranging between US$22.4-23.8k, settling down at US$23k. In our view, short-term holders who haven’t seen a profit for a long period of time are realizing some gains, preventing Bitcoin from breaking out the US$23k level. We believe that we could see some increased volatility in anticipation of the Fed's interest rate decision on Feb 1. However, future markets are indicating that a deceleration of the pace of hikes to 25 bps is fairly priced in. Therefore, as it happened with the release of inflation data from Dec early this month, a Fed decision in line with expectations should prevent risk assets from selling off, but it is not clear how much room there is for a continued rally in February.

If the crypto market rally persists in February, some technical analysts see the Bitcoin price potentially reaching US$30k over this period, given that there is enough buying pressure to break the resistances at US$25k and around US$30k. We believe that such a price jump is possible, but there will be a great deal of selling pressure from short-term holders, and even Bitcoin miners to realize some gains. Moreover, there will be more macro indicators out to confirm or deny that the Fed would be starting to pivot.

In the meanwhile, regulation is set to reclaim its central position in the crypto market debate. In the US, the state of Arizona could have a proposed law making crypto a legal form of currency. On the other hand, Sen. Elizabeth Warren has resumed her critical remarks towards the industry. Warren argues that the crypto industry is scared of the SEC's tough regulatory framework, praising its chairman Gary Gensler as the right person to do the job. Gensler and the SEC have been very critical of crypto in general. Besides specific risks regarding distressed crypto companies, we see a not clear regulatory framework in the near future as a potential risk for a solid market recovery in 2023.

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