Macro crypto currency market outlook

Bitcoin remains confined to a well-defined downtrend since topping out at a record high in late 2021. The breakdown in November 2022 to a fresh yearly low below $17,600 following a multi-week consolidation opens the door for the next major downside extension exposing a measured move objective at $10,000. Technical studies are however stretched, warning of a meaningful reversal in the coming months. And so, the risk for any significant decline below $10,000 is limited, with the balance of risk starting to tilt back in favour of the topside. But for now, it will take a break back above the November high at $21,500 to take the immediate pressure off the downside.

We’re finally out of the gloomy year that was 2022, a year which resulted in major setbacks in the prices of bitcoin and ether to the tune of 64% and 67.5% respectively. Looking back, the initial weakness as the year got going was mostly on account of a market that was well overbought into the end of 2021 and warning of the need for a very healthy pullback in early 2022.

But as the year progressed, there were other major factors at play which continued to result in downside pressure. One of those factors was the state of the global economy – namely, a developing trend of rising inflation forcing central banks into more aggressive, less investor friendly policy moves. And so, with crypto still correlating with risk assets as a new emerging market, the deterioration in global sentiment directly translated to downside pressure on crypto.

Of course, another major factor contributing to weakness in crypto was the round of blowups in the space culminating with the implosion of FTX into the end of the year. These events sent shockwaves through the market and cast a shadow over all of the positive momentum that we were seeing in the space to that point.

As we look ahead to how things will play out in 2023, we believe all of these factors will continue to play a major role in dictating the direction of the market. For now, we still see risk associated with rising inflation and aggressive central bank responses. We still see risk associated with fallout from the FTX collapse (will be interesting to see what comes of DCG and Genesis). And we also see risk associated with regulatory response, particularly if all of the recent events trigger an overly aggressive and counterproductive response that ends up stifling potential within the nascent asset class.

Ultimately however, the medium and longer-term outlook remains highly encouraging. Beyond what could be one more round of healthy setbacks in H1 2023, we see plenty of demand coming back into play, and we see investors stepping in and building exposure at discounted prices. We believe regulators have done a good job taking their time in getting to know the asset class, and as such, we remain optimistic that regulators will get it right when they finally do step in to offer much wanted clarity.

If we forget about price for a moment, one of the most encouraging developments of 2022 was the ongoing wave of institutional adoption in the space. These are players that make long-term decisions to commit to an asset class when they finally do decide to commit. And we saw a lot of these commitments from major players in 2022. So while the first half of 2023 could still be bumpy, we are optimistic that things should start looking up again well before the year is out.