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Bitcoin, the world’s first and largest cryptocurrency by market capitalization, is about to close out its best quarter in exactly two years.
Assuming that bitcoin is able to close Friday’s session at or above the current level of $28,200, the cryptocurrency would have gained a whopping 70% since the beginning of the year.
In the first quarter of 2021, the price of bitcoin increased slightly from the current level to close to $59,000. In fact, the end of the first quarter of 2021 marked the best quarterly closing level for bitcoin ever.
Bitcoin’s sudden comeback in 2023 comes amid a more favorable macro backdrop.
Fed’s tight bets ease amid concerns about weakness in the bank sector in recent weeks, which itself has prompted Safe-haven bid for “hard money” Like precious metals and proven cryptocurrencies like bitcoin (which many call digital gold).
Bitcoin’s 2023 rally is also likely to be driven by a mean reversion and improvement in bitcoin’s on-chain health – various technical and on-chain indicators have been flashing over the past few months that bitcoin was oversold last year and that bears The bottom of the market is now in possibility
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As the world’s largest cryptocurrency challenges bears in the first quarter of 2023, investors are wondering what the second quarter could hold for bitcoin.
Things are looking good for the medium-term technical outlook since bitcoin’s hugely significant bounce from its 200-day moving average and actual price break below $20,000 earlier this month, which is a sign of a downtrend through Q4 2021 and the end. And coincides with the retrend. -Q1 2022 High.
All of bitcoin’s major moving average points are higher and all have bullishly crossed each other – 21DMA is above 50DMA, which is above 100DMA, which is above 200DMA).
This means that the door appears open for a rally above $30,000 in the second quarter and a retest of the key $32,500-$33,000 resistance area.
But as all traders know, technology is not everything in the markets. Several important fundamentals are likely to have a major impact on the price of bitcoin in Q2. Let’s take a look at the most important topics.
Will the bank crisis worsen and lead to renewed safe haven demand for bitcoin?
Mini-bank moves as a result of concerns about poor balance sheet management, three crypto/tech/start-up friendly banks (silvergate, svb And signature bank) collapsed or were shut down by regulators earlier this month.
It has a wide U.S. gave rise to concerns about the (and global) bank crisis Which can put the entire financial system at risk.
For now, the response from policy makers has restrained a widespread bank run on US financial institutions – with officials making sure all depositors at these three banks did not lose any money, assuring deposits at other banks, Going above and beyond the Federal Deposit Insurance Fund’s usual $250,000 per account protection pledge.
In addition, the authorities launched new liquidity programs to ease off-balance sheet pressures being felt at other weak banks, as well as strengthening USD liquidity swap programs with other major central banks.
Those liquidity programs have meant that the Fed’s balance sheet has shrunk from less than $8.35 trillion at the beginning of March to about $8.75 trillion by the end of March.
That’s about $400 million in liquidity injections, undoing the liquidity withdrawals of the past four months that saw the Fed allow $95 billion per month to roll off its balance sheet without reinvesting Treasuries and mortgage-backed securities.
Elsewhere, a consortium of large US banks also came together to help rescue weak bank First Republic, which took in $30 billion in deposits.
While concerns about a full-blown banking crisis have eased somewhat this week, also helped by an agreed purchase of SVB’s assets, the situation remains fragile and, for now, bitcoin is in its “safe-haven” position. The bid is upheld.
Bitcoin is seen by its proponents and many investors as a safer alternative to fiat currency, which is not considered 100% safe in a bank thanks to the fractional reserve banking system.
If there is a resurgence of bank crisis concerns in Q2, it should push bitcoin’s price lower, even if a proactive response from policymakers keeps a lid on things and averts a full-blown financial crisis.
Will The Fed Continue To Tighten And Could This Derail Bitcoin Bulls?
Less than a month ago, US currency market participants were pricing in a strong possibility that the US Federal Reserve would raise interest rates to around 5.5% or above by the end of the second quarter.
In the wake of the emergence of bank crisis concerns, those stark expectations have seen a sharp downgrade.
Along with safe-haven demand for hard currency, the easing of hard bets has been a significant tailwind for bitcoin, which tends to outperform when financial conditions improve.
According to CME’s Fed Watch tool, which provides implicit outlooks on where Fed interest rates could be in the future based on money market pricing, a Fed tightening cycle is now most likely.
What’s more, an aggressive tightening cycle is now being priced in, with money market betting rates falling into the low-4.0% zone by December, versus expectations a month ago that rates would still be in the mid-5.0% zone. .
The Fed hiked interest rates by 25 bps last week In the range of 4.75-5.0%.
The narrative driving aggressive revaluations appears to be that 1) further tightening will increase the risk of worsening the bank crisis and 2) that US likely to enter recession later this year As banks stop lending and focus on strengthening their balance sheets.
Both are seen as highly deflationary, meaning that markets have come to the conclusion that US inflation (which is well above the Fed’s target) will fall sharply later this year, prompting the Fed to raise interest rates. There will be scope to cut rates.
While money markets may be right to bet on an aggressive incoming rate-cut cycle, there is no guarantee that things will go down that way.
Various inflation metrics have turned upside down in the first quarter of 2023 and the US economy, particularly its labor market, remains remarkably resilient.
If the situation remains the same in the second trimester, Currency markets may have to lower their bets on Fed interest rate cut,
This could be a headwind for bitcoin and the wider crypto market.
Conversely, if the lagged effect of the aggressive tightening in 2022 eventually starts to weaken in the labor market and inflation resumes its downward trend, it could raise the rate-cut stakes. Which could add more fuel to the bitcoin bull market.
US crypto crackdown elaborates as SEC and CFTC battle for regulatory authority
Crypto regulation in the US (and elsewhere) could be the key to price action in the second quarter. In the US, regulatory agencies including the US Securities and Exchange Commission (SEC) and the Commodity Futures and Trading Commission (CFTC) are going after major centralized crypto players.
Last week SEC Issues Wells Notice to Coinbase warning the cryptocurrency exchange that it faces lawsuits over 1) its various staking programs (which the SEC treats as unregistered securities) and 2) its listing of tokens, some of which are considered securities to the SEC , meaning that Coinbase would then be an unregistered securities exchange.
Elsewhere, the SEC’s ongoing lawsuit against Ripple, the creator of XRP and XRP Ledger, could unfold in the next quarter. XRP has been rallying lately On optimism that the SEC will lose its bid to label XRP as an unregistered security issued by Ripple.
Meanwhile, the The CFTC announced this week that it is pursuing Binance Operating under-the-table as an unregistered US digital commodity exchange and having a bogus AML/KYC compliance program.
Those are some of the highest-profile cases, but they demonstrate how, in 2023, the US authorities are trying to make their mark on the crypto market through regulation through enforcement.
The two cases also highlight a clash of visions between the SEC and the CFTC. The former has said that it views almost all cryptocurrencies as securities.
The latter treats as many objects. Indeed, in its latest lawsuit against Binance, it named bitcoin, ether, litecoin, tether, and Binance USD as commodities.
SEC Labels Binance USD as security in a lawsuit against its issuer Paxos, and has indicated that it also looks at other stablecoins and ether as securities.
How the SEC vs CFTC Battle Could Affect Crypto/Bitcoin
In the crypto space, this is broadly seen as positive if the CFTC’s view wins and widely seen as negative if the SEC’s view wins, as the latter would mean a much tighter regulatory regime. , as well as a mountain of potential fines and penalties. Industry players at last discretion.
More specifically, if the SEC’s argument that most cryptocurrencies are securities holds ground, it is seen as likely to curtail the growth of the crypto industry in the US.
This will also result in a major increase in the barriers to investing in crypto for US-based retail traders and institutions.
This would be a catastrophe for a cryptocurrency labeled as a security or at risk of being labeled one. But the impact on bitcoin is unclear.
Counterintuitively, this could benefit bitcoin if there is a substantial flight to shelter within the crypto space, with bitcoin the only cryptocurrency the SEC has explicitly stated it does not view as a security.
Traders will be closely watching SEC Chairman Gary Gensler’s appearance before Congress on May 19th April for any further guidance on the SEC’s regulatory plans for the crypto sector.
Can the Asia Adoption Narrative Move Forward?
Other regulation-related topics to monitor include Hong Kong is witnessing a policy pivot,
Earlier this quarter, Hong Kong announced it would once again make some blue-chip cryptocurrencies legal to trade, and announced A new licensing regime for crypto firms,
Crypto investors saw this as the Chinese government, which dictates policy in Hong Kong, “testing the waters” for a possible re-introduction of crypto into China.
Crypto is set to be completely banned in China in September 2021 and legalization, even for just a few well-known cryptocurrencies, could spark huge investment inflows.
forward signals China’s Growing Interest in Returning to the Global Crypto Market This could thus provide a strong tailwind to bitcoin in the coming quarter as traders anticipate Chinese inflows.
Meanwhile, another regulatory story to watch is the progress in regulation in the UK and Europe. UK has expressed desire to become a major global crypto hubWhile lawmakers in the EU and the bloc are currently debating Markets in Crypto Assets (MiCA) Bill,