Bitcoin lost steam the previous day and looks poised to retest its support levels in the coming days. The cryptocurrency recovered thanks to favorable macroeconomic winds and high upside liquidity from over-leveraged short traders.
At the time of writing, Bitcoin is trading at USD 20,800 with a 3% loss in the last 24 hours. BTC remained positive for the past seven days, posting a 16% gain. The number one crypto by market capitalization performs best in the top 10.
The biggest short-term obstacle for Bitcoin
NewsBTC reported that short positions piled up as Bitcoin tended upwards. The market took more than half a billion dollars in short positions. As the market moved up, these positions were liquidated, allowing BTC to continue rising.
In this sense, Bitcoin could continue to rise upwards, but at a slower pace. As the market ate off those shorts over the past week, overconfident long positions could become targets. This shift could push BTC back towards the critical support points of USD 19,600 to USD 19,700.
These levels coincide with the 200-Day Simple Moving Average (SMA) and 50x leverage longs. So there is a high pool of liquidity at those levels ready to be taken by market movers.
On higher timeframes, a recent report of QCP Capital claims that the macroeconomic winds could change and negatively affect crypto. 2023 started with a positive outlook for critical metrics, such as inflation, and high expectations of a monetary pivot from the US Federal Reserve.
The financial institution has raised interest rates and relieved its balance sheet to fight inflation. This measure is at its highest level in the past 40 decades.
Markets will have a “rude shock”?
Recent data shows that inflation is declining; this trend could support the Fed’s monetary policy slowdown and provide room for Bitcoin and asset risk recovery. However, QCP Capital believes that while Q1, 2023 could be positive for these assets, Q2 could see some hurdles:
While we expect the February 1 FOMC to push back strongly against this pricing, we believe the March 22 FOMC will be the moment of truth, when updated interest rate forecasts will be released. Should there be no adjustment to the 2023 median, we expect markets to be in for a major shock.
The fact that Bitcoin and some stocks are rising is a testament to “how quickly financial conditions have eased,” the company believes. The Fed has been battling this economic climate, so the return could prompt the financial institution to tighten monetary policy.
For next year around this time, the market is expecting much lower interest rates, as shown in the chart above. It remains to be seen if the Fed will live up to these expectations or if inflation will continue, leading to more pain in crypto and the legacy financial market.