It is not all plain sailing when it comes to Bitcoin's price recovery this year, with U.S. liquidity conditions calling the shots.
Bitcoin (BTC) still risks “considerable danger” in 2023 as macroeconomic conditions dictate price action.
That is according to economist Lyn Alden, who in private comments to Cointelegraph cautioned on Bitcoin staying bullish after its January gains.
Alden: BTC price bottom is a "process"
Optimism is increasing throughout crypto as BTC/USD broadly retains levels, which are 40% higher than at the start of the year.
What the rest of 2023 may hold, however, is still a topic of debate, and Alden suggests that it is naive to assume that the good times will continue unchecked.
The reason, she says, lies with the United States lawmakers and the Federal Reserve.
“I expect the BTC bottom to be a process,” she summarized about the current state of Bitcoin.
“BTC prices are heavily tied to liquidity conditions, and liquidity conditions have been improving since Q4 2022.”
That recovery has effectively removed any trace of the FTX debacle from the chart, with BTC/USD now circling its highest levels since mid-August.
“The FTX/Alameda collapse pulled down the industry in the second half of Q4 even as many other assets rallied (equities, gold, etc), and now it seems that BTC is playing a bit of catch-up, and getting back to where it would have been without the FTX/Alameda collapse occurring,” Alden continued.
"Considerable danger ahead"
What could lie beyond that “catch-up,” however, could be less savory for bulls.
The Fed is currently conducting quantitative tightening (QT), removing liquidity from the economy to fight inflation after several years of mass liquidity injections, which began in March 2020.
These are being mitigated thanks to U.S. domestic politics, but later on, the status quo could shift back to the kind of restrictive mood seen throughout Bitcoin’s bear market year of 2022.
“There is considerable danger ahead of for the second half of 2023,” Alden explained.
“Liquidity conditions are good right now in part because the U.S. Treasury is drawing down its cash balance to avoid going over the debt ceiling, and this pushes liquidity into the financial system. So, the Treasury has been offsetting some of the QT that the Federal Reserve is doing. Once the debt ceiling issue gets resolved, the Treasury will be refilling its cash account, which pulls liquidity out of the system. At that point, both the Treasury and Fed will be sucking liquidity out of the system, and that would create a vulnerable time for risk assets in general including BTC.”
If H2 proves to be Bitcoin’s reckoning, it would tie in with other warnings from market commentators regarding 2023.
As Cointelegraph reported, Arthur Hayes, former CEO of exchange BitMEX, has a much grimmer forecast for the year, likewise courtesy of Fed policy.
In the long term, however, Alden is confident that Bitcoin will recover from its recent lows for good.
“I do think this is a deep value accumulation zone for BTC with a 3-5 year view, but traders should be aware of the liquidity risks in the second half of this year,” she concluded.
The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.