Dear Subscribers,
As the New Year gets going, we want to offer a quick perspective on where crypto stands in relation to an increasingly complex macro environment. Next week you can expect the next Uncharted 31 for a deeper analysis of the topics we are introducing today.
It is our view that in 2023 crypto, as a whole, will continue to struggle with high volatility, while well-founded projects (certainly including bitcoin) will gain massive importance in a world where trust in our institutions is increasingly tested.
Let’s dig in!
“A rose in a desert can only survive on its strength, not its beauty.”
- Matshona Dhliwayo
State of the System
Following a turbulent December with bitcoin gaining and losing steam - as seen by the back and forth in the compass - (see Uncharted 30), 2023 kicked off with a bang. Bullish momentum is building up as volume increases in an apparent renewed risk-on environment. Bitcoin is progressing through the bullish quadrant as investors gain confidence in the system, but we expect a charged year ahead of us.
2022 at a glance
In 2022 we had two heavyweight events that led to a prolonged state of fear in the crypto market:
The collapse of Terra and UST on May 12th, 2022, caused meaningful distrust in algorithmic stablecoins and increased skepticism in altcoins and stablecoins as a whole, in particular by retail investors.
The collapse of FTX in early November 2022 also hit institutional investors significantly due to the high credibility the exchange had managed to build up over time.
The above events flushed out towering amounts of both institutional and retail capital, with the overall crypto market cap losing over $2tn between November 2021 and November 2022, and $100bn lost since early November 2022 until today.
Renewed bullishness in a brittle system
Now, turning to bitcoin, the first signs of improvement are evident in its price structure. A renewed bullish trend that started on January 1st drove bitcoin to the $18.6 - $18.9k level, yet a cross over to $19k is necessary to claim a new trading channel around $19-$21k. Resistance is expected around these levels as bitcoin faces a mid-term downward trend. If the price fails to break over the trend line, we expect a retrace toward the $16-$17k area.
Low risk times tend to be short-lived
Selling pressure has subsided, and the improving demand driving the price since January 1st caused the SBT Risk Signal to decrease rapidly, implying a lower risk of a pronounced drop. Bear in mind that idiosyncratic risk remains high as investors and regulators continue to feel distrust following the FTX demise. Tensions are high, and the system is brittle. Selling pressure could accelerate again and drive bitcoin lower.
Strongest of the fittest
Now that the speculative energy of crypto, which peaked in late 2021, has cooled off, we see an extended bitcoin season that underlines a new focus on quality of projects, where a key question is how long they will be around in the future. We will dive deeper into this notion in Uncharted 31 next week.
Enjoying the New Year’s update so far?
👍 | 👎
The fight against external and internal risks
So, how is crypto positioned for 2023? Further progress depends on traditional markets and the macro environment in the next few months. The sentiment is improving, and there is a likelihood that we see higher prices as the S&P 500 potentially bottoms and inflation is coming down fast
Meanwhile, bitcoin is trading at levels not seen or held since September 2022, and the SBT Risk Signal is at zero, implying a lower risk of a pronounced drop.
However, we are confident that this year will be volatile, and that a focus on quality and project utility will play an increasing role relative to 2020 to 2022. Keep in mind that on the regulatory side, there are major headwinds for the industry, with the SEC suing Gemini and Genesis, Binance being under scrutiny, and further actions being taken against companies in the crypto space. It may be that this year will show which the strongest, most decentralized projects are.
More on this in our next Uncharted next week!