Dear subscribers,
As we begin the new year, it's clear that the markets have taken a turn for the better. Perhaps most notably, we've seen a significant recovery in the crypto market despite ongoing concerns discussed in previous Uncharted editions.
The issues surrounding regulatory risks of crypto are still present, bankruptcies continue to unravel, and macroeconomic headwinds persist, but bitcoin seems more resilient. The price remains above $22k, liquidity and sentiment appear to be improving, and there are some explosive altcoins.
Let’s dig in!
“Life is not linear; you have ups and downs. It’s how you deal with the trough that defines you.” ~ Michael Lee-Chin
At a glance
State of the System
The crypto market is experiencing a strong recovery, with bitcoin in the bullish quadrant and on track for its strongest January since 2013.
Improved liquidity in crypto and momentum indicate renewed bullishness and confidence in the market.
However, headwinds persist, and the market is waiting for the next macroeconomic catalyst to drive the next push in the crypto market.
The macro environment
The big question is whether or not we are currently in a recession, and if not, when is it coming?
The market performance of bitcoin and other risk-on indicators suggest that the economy may not be as bearish as some analysts predict.
The Fed's position and rate hikes could impact bitcoin's price, as it is sensitive to credit availability and liquidity.
Crypto’s course
Bitcoin's momentum has turned bullish after a period of bearishness, with decisive price action in January driving the SBT BTC Momentum Index towards the extreme.
For the momentum to remain bullish and for the price to break above resistance, it is important to see buy-side demand kick in at levels above $20k.
Selected altcoins are showing potential in the market, particularly in the decentralized finance (DEX) and AI spaces see figures 12, 13, and 14.
Outlook
The crypto market is showing signs of development, with altcoins following bitcoin, and the $20k psychological level is likely to hold. The key to future growth is monitoring the macro environment. 2023 is expected to be a year of opportunity for the crypto market.
State of the System
After a period of seller exhaustion, stablecoins sitting on the sidelines, and high risk, (see Uncharted 29 and Uncharted 30) the cryptocurrency market appears to be experiencing a strong recovery. Bitcoin, in particular, is in the bullish quadrant (figure 1) and is on track to log its strongest January since 2013, with a 38.6% month-to-date return.
This uptick in performance is accompanied by improved liquidity in both the crypto and traditional markets and an increase in unrealized profits against losses, indicating renewed bullishness and confidence in the market.
The bullish momentum in the crypto market depends on bitcoin holding the strong psychological $20k resistance level. Recent price action has shown a new support level forming around $21k (figure 2), backed by substantial trading volume acting like a short-term buy wall. However, bitcoin has failed to break above the $23k resistance level. It appears that the market is waiting for the next macroeconomic catalyst and corresponding move in traditional markets to drive the next push in the crypto market.
As bitcoin regains traction and confidence in the system improves, the perceived risk in the market is also reducing. However, concerns from previous Uncharted reports remain despite the lower risk of an aggressive drop and the SBT Bitcoin Risk Signal being at 0 (figure 3). There is continuous FUD around Binance due to mixing BUSD supposed reserves with client funds. Regulatory pressures for the crypto industry persist, and bankruptcies continue to unravel, with Digital Currency Group on the brink of collapse. While it may seem that the market is reaching a turning point, headwinds persist, and it remains to be seen if bitcoin can show resilience in the face of these challenges.
The SBT Altcoin Cycle Signal (figure 4) indicator chart shows an extended bitcoin season since October 2022. However, it's worth noting that altcoins are starting to catch up with bitcoin. 74% of the top 100 altcoins are in the green this week, and all of the top 20 altcoins, excluding stablecoins, are above their 50-day moving average. This shows that altcoins are following bitcoin's move.
The SBT Bitcoin Risk Signal and SBT Altcoin Cycle Signal have presented an unusual picture. We will examine a specialized chart known as the Pi Cycle Top Indicator (figure 5), to further analyze the current market trend. This metric is used to detect when BTC becomes significantly overheated, as the shorter MA reaches the levels of the larger MA.
As we can see in figure 5, there has not been a crossing of the 111MDA line over the 350DMAx2 line, which is the indicator of a cycle top. In fact, at the moment, the two lines are far apart, and bitcoin's price is currently under the 111 DMA line. This occurrence is rare and typically does not last for an extended period.
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The macro environment
The big question on everyone's mind is whether or not we are in a recession. If not, when is it coming? The most recent Leading Economic Index from the Conference Board (figure 6) suggests a recession is imminent, but as history has shown, it takes a few months for the recession to materialize in the economy.
Bitcoin and other risk-on assets like the S&P 500 kicked off 2023 with a bang, which is unlikely for a recession. This suggests that the current state of the economy may not be as bearish as some analysts predict, or it could be a sign that the market underestimates the possibility of a recession.
Credit spreads (figure 7) anticipated the dot com bubble and the financial crash in 2008. A rising credit spread suggests a higher risk as investors demand a higher yield on a bond with lower credit ratings or when there is a higher risk of default. While the high-yield credit spread increased in 2022, it never reached levels of the pandemic shock in 2020, nor previous highs in 2008 and 2002.
The recent trend of bitcoin bottoming and credit spreads decreasing implies that we are not in a recession yet. This trend is worth monitoring as it can provide insight into the level of risk in the market and how it may impact bitcoin's price in the future.
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