Bitcoin (BTC) remains at risk of “significant danger” in 2023 as macro conditions dictate price action.
This is according to economist Lyn Alden, who warned in private comments to that bitcoin will remain bullish after its January gains.
Alden: BTC price bottom is a ‘process’
Optimism is on the rise across the cryptocurrency as BTC/USD generally maintains levels that are 40% higher than at the beginning of the year.
However, what could happen before the end of 2023 is still a matter of debate, and Alden suggests it’s naive to assume the good times will continue unchecked.
The reason, she says, lies in US lawmakers and the Federal Reserve.
“I expect the BTC bottom to be a process,” she summed up about the current state of Bitcoin.
“BTC prices are highly pegged to liquidity conditions, and liquidity conditions have been improving since Q4 2022.”
This recovery has effectively removed any trace of the FTX fiasco from the chart and BTC/USD is now at its highest level since mid-August.
“The FTX/Alameda crash brought the industry down in the second half of the fourth quarter, despite what many other assets (stocks, gold, etc.) would have done without the FTX/Alameda collapse,” Alden continued.
BTC/USD is trading at around $22,600 at the time of writing, according to data from Markets Pro and TradingView.
1-day BTC/USD candlestick chart (Bitstamp). Source: Trading View
“Great Danger Ahead”
However, what may lie outside of this ‘catch-up’ may be less attractive to bulls.
Related: BTC Metrics Breaking Out Of Capitulation – 5 Things To Know About Bitcoin This Week
The Fed is currently pursuing quantitative tightening (QT), removing liquidity from the economy to fight inflation after years of massive liquidity injections that began in March 2020.
They are easing thanks to US domestic politics, but the status quo could later return to the restrictive sentiment seen during the Bitcoin bear market in 2022.
“In the second half of 2023, we are facing a serious danger,” Alden explained.
“Liquidity conditions are good right now in part because the US Treasury is cutting cash balances to stay within the debt ceiling and that is pushing liquidity into the financial system. So the Treasury offsets the portion of QT that the Federal Reserve does. Once the debt ceiling issue is resolved, the Treasury will replenish its cash account, which will draw liquidity out of the system. At this point, both the Treasury and the Fed will be sucking liquidity out of the system, and this will create a vulnerable time for risky assets in general, including BTC.”
If H2 turns out to be Bitcoin’s reckoning, it will tie in with other market commentators’ warnings for 2023.
As reported, Arthur Hayes, the former CEO of the BitMEX exchange, has a much bleaker outlook for the year, also thanks to the Fed’s policies.
However, in the long term, Alden is confident that Bitcoin will permanently recover from recent lows.
“I do think this is a deep accumulation zone for BTC value with a 3-5 year outlook, but traders should be aware of liquidity risks in the second half of this year,” she concluded.
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