January 23, 2023 – Bitcoin continued to surge over the weekend, reaching above US$23k for the first time since early August. However, it retreated back to US$22k price level late Sunday, trading around US$22.9k in the last 24 hours. Bitcoin has risen ~37% ytd despite Genesis filing for bankruptcy. Some market participants have argued that this event was already priced in, and a short squeeze is likely fueling the market. We believe this short squeeze has been driven by the increasing expectation that the Fed will start to reduce the pace of interest rate hikes on Feb 1.
On-Chain data suggests that the Bitcoin rally could continue as the Bitcoin Market Value to Realized Value (MVRV) ratio broke above 1. The MVRV ratio moves with the prevailing sentiment in the market, which is that BTC is bottoming up, making another leg up possible. Some traders may use the MVRV ratio to time market entries and exits because whenever the MVRV ratio moves from below to above 1, it would imply that prices are at their bottom. In our view, this indicator is a good predictor of a bottom, however, it will need the confirmation of other on-chain indicators to consolidate the bullish sentiment.
Until the Fed meeting (FOMC) next week, we don’t believe there will be an increase in Bitcoin’s volatility. The market is expecting a reduction in the pace of the hikes, but some commentators are cautious. According to the former CEO of BitMex Arthur Hayes, Bitcoin could yield all its recent gains if the Fed does not pivot on monetary policy. We agree with Hayes because inflation data for Dec declined, providing subsidy for a reduction of the pace of interest rate hikes. Therefore, if the Fed persists with its 50bps increases, the market could sell off.
Bitcoin traded above US$23k over the weekend, retreating a bit on Sunday
On-chain data underscores Bitcoin rally
Arthur Hayes warns that Bitcoin could crash if Fed does not pivot
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