Arguably, 2022 was one of the worst years for Bitcoin (BTC) buyers. This is mainly because the price of the asset has fallen by 65% of his. There were several clear reasons for the decline, such as the LUNA-UST crash in May and his November FTX crash, but the most important reason was the policy of the US Federal Reserve (Fed). There was an interest rate reduction and an increase.
Bitcoin price fell 50% from its peak to a low of $33,100 before LUNA-UST crashed thanks to the Fed rate hike. Bitcoin’s first significant drop was due to growing market uncertainty surrounding rumors of a potential rate hike in November 2021. By January 2022, the stock market had already begun to show cracks due to the imminent mounting pressure of the taper. This has also negatively impacted crypto prices.
Fast forward to the year and crypto markets continue to face the same problem, with headwinds from Fed rate hikes limiting any significant bullish moves. The worst part is that this regime could last much longer than market participants expected.
Clues emerge from the dot-com bubble of the 1990s
The dotcom bubble of 1999-2000 could tell investors a lot about the current crypto winter, and it continues to paint a grim picture for 2023.
The tech-rich Nasdaq Composite ballooned to enormous levels by the early 2000s, and the bubble burst in 1999 and 2000 when the Fed began raising rates. From its peak he has decreased by 77%.
The crypto market is currently facing the same scenario.
Federal Reserve Chairman Jerome Powell is desperate to keep inflation under control, which means interest rates will rise for some time. Minneapolis Federal Reserve Governor Neel Kashkari wrote in his recent blog post that he expects the final rate to rise to his 5.4% by June 2023.
Notably, during the dot-com bubble, the Fed stopped raising rates in May 2000, but the Nasdaq continued to fall for the next two years. Therefore, we can expect the cryptocurrency market to drop further, at least until the Fed pivots. If the U.S. economy experiences a recession similar to his 2001, there is a risk that the current bear market will last even longer.
signs of recession intensify
In November 2022, the US dollar’s M2 money supply turned negative for the first time in 28 years, according to a report by Mises Institute analyst Ryan McMaken. It is an indicator of potential recession and is usually “preceded by a slowdown in money supply growth.”
While McMaken acknowledged that a negative money supply growth indicator could turn into a false signal, it is “generally a red flag for economic growth and employment. It is also another indicator that the so-called soft landing promised by
The latest report from the Institute of Supply Management also showed that US economic activity contracted for the second month in a row in December. The purchasing manager’s index (PMI) for December was 48.3%, with values below 50% implying contraction. This suggests that demand for the product is declining, possibly due to rising interest rates.
The average US recession since 1857 lasted 17 months, and the six recessions since 1980 lasted less than 10 months. This recession technically he started in August 2022 with two-quarters of negative GDP growth. Historical averages indicate that the current recession could last from his June 2023 to January 2024.
Could favorable conditions form sooner than 2024?
The crypto market needs a realm of easy return money to build a sustainable bull market. But based on the Federal Reserve’s current plans, these situations look far into the future.
Only a black swan event that forces the US government to resort to quantitative easing with low interest rates and economic stimulus, as during the COVID-19 pandemic, can ignite another bull market.
A bubble may be forming in the consumer loan sector, which has grown exponentially over the past decade to nearly $1 trillion, according to independent market analyst Ben Lilly.
The rise has been particularly steep in the past two years since the US government stopped issuing stimulus checks. Lilly speculates that the sector could collapse if increasing economic tensions prevent many borrowers from repaying their loans. He also said, “We need government stimulus to solve it.”
The bubble burst timeline is one of the most difficult to predict. That could coincide with the end of the recession sometime in late 2023 or 2024.
To date, total cryptocurrency market capitalization has fallen 75% from its peak of $3 trillion. The peak of about $750 billion in 2017 is an important level of support and resistance for the market. Breaking this level could push the industry’s market capitalization below $500 billion.
A temporary bear market rally is possible, but macroeconomic pressures could undermine any positive move.
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