YEREVAN (CoinChapter.com) – Bitcoin took a hit in 2022, plunged 65% year-to-date, taking cues from the declining stock market, Federal Reserve’s hawkish attempts to curb the growing inflation, and the dire geopolitical situation in Ukraine. As a result, the BTC/USD rate still bobbed below $16,900 on Dec 27.
Meanwhile, it is important to discuss the broader market conditions in order to make a viable Bitcoin prediction for 2023.
Analysts expect a recession in 2023
The stock market has experienced a turbulent year, with several downturns and partial recoveries. For example, the S&P500 index declined 20% year-to-date, with bleak forecasts for 2023. David Zanoni, the author of “Margin of Safety Investing,” saw recession looming and more interest rate increases that are “likely to slow the economy in 2023.”
Interest rates affect the stock market
In detail, the interest rate increase is one of the Fed’s tools to fight inflation. The tougher borrowing terms and higher interest rates curb consumer spending. They are designed to slow down the economy, subside consumption, and, by extension, inflation as well.
According to the latest consumer price index (CPI) report, the November data showed inflation at 7.1%, much higher than the ‘healthy’ 2% marked up by the Fed. Notably, the November results were lower than the 7.7% rate from October. But the December CPI might still come in stubbornly high.
Hitting the breaks on spending means the stock market will not recover soon. Additionally, with recession warnings, the stocks have more room to tumble in the coming year.
Recession expected in 2023
The runaway inflation, despite a series of interest rate hikes, means even more hawkish policies to come in 2023. Zanoni agreed with the outlook, ringing recession bells for the year ahead.
It is likely that higher rates and layoffs will have a snowball effect in the broader economy as demand for goods/services declines as consumers and companies cut back on spending due to higher borrowing costs and with more people out of work.
“Higher interest rates typically lead to recessions as a part of the normal business cycles,” added Zanoni, citing previous crises of 2000 and 2008. The author also cited the relationship between the 3-month and 10-month treasury yields as “one reliable recession indicator.”
When the 3-month treasury yield becomes higher than the 10-year treasury yield, as seen on the chart below, the yield curve is said to be ‘inverted.’ This occurrence predicted the last 10 recessions.
“It’s ok to hope for the best, but prepare for the worst,” says Forbes analyst
John S. Tobey, a market analyst for Forbes, agreed with the recession outlook. According to the expert, recession risks stem from “the abnormal investor behavior (both individuals and institutions)” that has led up to the current combination of economic and financial issues.
Why focus on the worst? Because that’s when emotions most easily overwhelm any promises to oneself that thou shalt not sell. Breaking that promise likely means locking in miserable returns.
So, what to do? It’s an easy step in this market. Raise some cash and invest it in a money market fund that is now – finally! – paying a decent interest rate.
commented the expert, citing the unstable situation on the market.
Bitcoin to the rescue?
When the recession is here, will investors turn to the crypto market, particularly Bitcoin?
It doesn’t seem likely as of the current correlation between BTC and the risk-on assets. A return to the ‘digital gold’ narrative might be possible if investors view the crypto sector as a hedge against runaway inflation.
However, the inflow of institutional funds onto the Bitcoin market ensured the latter’s dependence on the broader economy. As a result, the flagship crypto will likely follow the stock market into recession in 2023. Notably, the December CPI data is due Jan 13, shedding more light on the Fed’s policies.
A recession might be avoided if a more dovish approach follows a possible lowering CPI.
Moreover, 2022 was a pivotal year for crypto, with several DeFi collapses. The Terra implosion came first in May, leaving a long contagion wave behind. The next major crisis came in November, with the FTX collapse, which also threatened to tumble Binance.
The trust in the crypto market has been somewhat broken, although Bitcoin and DeFi cannot be equated. Thus, the notion of ‘digital gold’ might not apply just yet. On the contrary, consumer banking corporation Standard Chartered saw a gold rally ahead while pinning the target BTC price as low as $5,000.
Cryptocurrencies fall further, and more crypto firms succumb to liquidity squeezes and investor withdrawals. […]The 2023 resurgence in gold [also] comes as equities resume their bear market and the correlation between equity and bond prices shifts back to negative
Meanwhile, Ryan Selkis, the founder and CEO of crypto analytical platform Messari, remains positive on Bitcoin in the long haul. In his annual crypto report, the expert pointed out that the sanctions against Russia and the continuing war might weaken the dollar.
On the other hand, Bitcoin is “outside money” and will eventually help investors hedge their funds against the weakening greenback.
Bitcoiners often get ridiculed for “moving the goalposts” on bitcoin as an inflation hedge, but most of us have always used inflation as shorthand for “long-term monetary debasement” (QE is permanent), not point-in-time hedges on changes to Fed rate policy.
“Bitcoin is big now, and its continued ascendance will be slow but powerful,” added Selkis. However, as of Dec 27, the price target of $10,000 remains relevant for Bitcoin, fuelled by bearish technicals.
Bitcoin for $10K in 2023
As CoinChapter reported before, technical indicators pointed to a $10,000 target for Bitcoin, since confirming a bearish pattern on Nov 8, amid the FTX debacle. In short, the BTC/USD price action broke below $18,500, the lower trendlines of a descending triangle.
The formation connects swing highs and lows, forecasting a subsequent drop equal to the triangle’s maximum height. The setup pinned the target price for BTC at $10,000, and the dropping trading volumes point in the same direction.
However, crypto analyst Michael Van de Poppe made a bullish prediction for BTC if it can break a crucial resistance.
If we’re not able to get above $18,600, you [can argue that] you’re looking at $12,300. However, the amount of people that are currently focused on it is kind of heavy, which means that we are most likely not going to get there.
While making solid predictions in an unstable market climate is hard, the bears might steal the show in 2023. According to experts cited above, Bitcoin is likely to follow the stock market’s bearish cues, which could tumble into recession.
As mentioned, the geopolitical tension worldwide affected the markets heavily. Thus, there are many factors and risks to consider that would make the Bitcoin projections incorrect.
However, an actual end of the Russian-Ukraine war would put a positive spin on market expectations and lead to a rally. Additionally, China could open up its economy, which would be more positive for the global economy than expected and help avoid a recession.
The price target for Bitcoin remains at $10,000 for 2023.
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Lilit is a Yerevan-based Markets writer, skilled in 3 languages, and interested in writing about the tech world, trading, art, and science. She also has a background in psychology and marketing, which helps deliver the right message to the target audience.