It was a tale of two bitcoins in 2022. One was hedging against uncertain times – something it showed both when Russia waged war on Ukraine earlier this year and after the fall of FTX, which has been called one of the biggest financial frauds in American history, rocked the markets last month. This has been one of bitcoin’s greatest promises. The other was the riskiest of the risk assets, whose movements mirrored those of technology stocks. This has been bitcoin’s way for most of the year, perplexing and disappointing some looking for a more stable asset in a turbulent market. Bitcoin will likely stay that way into the new year, at least for the first half. But investors and strategists will eagerly watch not only its decoupling from macro factors, but also to see how it holds up under uncertainty. “It’s not going to be an easy year for the economy, and the stock markets will pull through eventually, but there will be instabilities,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. “There’s a lot of interest to see, now that bitcoin’s price has corrected so much, whether from these new levels it can deliver on the promise it’s been seen as a possibility for so long,” he said. he added. “It will be a year where he shows his stripes more.” The FTX explosion washout sets up a good testing ground for bitcoin. There has been a huge price correction, but there is more institutional interest in digital assets than ever, Ma noted. The market is more balanced and realistic, it has more clarity and more stable capital. Much of the speculation has been wrung out, he said. It won’t happen overnight, but more than ever investors want to see a utility-driven crypto market rather than speculation. “What this crypto winter has taught us is that we need to find real use cases for crypto, and that for too long capital has flowed into unproductive projects,” said analyst Callie Cox. US investments at eToro. “But I am hopeful that in 2023 – with construction underway and with little capital invested in productive projects – we will see progress on this front.” Barclays analyst Benjamin Budish said his team believes “crypto assets are likely to continue to behave as high-risk assets going forward.” However, this correlation could begin to break down “as cryptocurrencies can more clearly demonstrate practical and potentially disruptive use cases.” Similarly, Alkesh Shah, crypto and digital asset strategist at Bank of America Securities, said crypto assets will trade in line with risky assets “during 2023,” but he sees the potential for a divergence, “as investors shift away from trading speculation towards the development and adoption of blockchains and token-powered applications with utility and cash flow.” Investing over the next two quarters Bitcoin has fallen more than 60% this year and sits around 75% from its November 2021 high. by the macroeconomic situation, analysts said. Additionally, cryptocurrency prices have remained relatively stable since the summer. Prices are trading sideways, but some believe that the m I am sure some of the carnage in the market is over and while they could go down further, they have been at or near lows. “Where we are now, there are probably more people looking to sell in the rallies, but there are also people clearly looking to buy the dips,” said BMO’s Ma. “That’s why he’s held up and been relatively stable. It’s unclear which side has stronger momentum right now.” Lyn Alden, founder of Lyn Alden Investment Strategy, said these battered levels are a good accumulation point for someone with a three-year or longer view on bitcoin, but they “have to be worried” in the short term. . “I’m still very uncertain for the next two quarters as we still have a declining PMI environment, general risk conditions, the Fed trying to tighten monetary policy both with rates and with its balance sheet,” he said. she declared. Purchasing managers indices, widely used indicators for the direction of economic activity, are her favorite way to track where bitcoin might go next, she said. “Most of the bitcoin ups have been associated with this rising PMI environment, this rising liquidity environment, and most of the bear markets have been associated with the downside of those things and this one was no different. .” In the second half, however, Alden said it expects higher global money supply growth, which would be good for bitcoin. When the broad money supply increases, bitcoin tends to do well. Bitcoin bull markets occur during these periods. When there is a setback in that growth, as there has been this year, bitcoin tends to struggle, Alden explained. Weak equity earnings could also help bitcoin, she added. “In 2023 it will be a different story, which is to say that earnings are more of a concern for the broader asset space, but the overall hardness of the dollar and the reduction in valuations of some will not be. the big story,” she said. “This gives assets like gold or bitcoin a chance to potentially do better than what we’re seeing in the broad equity space, as weakness is likely to be more earnings-related.”
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