This is the story of two bitcoins in 2022. One of them is a fence for uncertain times – which shows both when Russia fought against Ukraine at the beginning of the year, and after the collapse of FTX, which is said to be one of the biggest. financial frauds in American history, shaking the market last month. This is one of the biggest promises of bitcoin. The other is the riskiest risk asset, which moves similar to technology stocks. This has been the way bitcoin has been for years, confusing and disappointing some who are looking for a more stable asset in a turbulent market. Bitcoin will probably stay that way in the new year, at least for the first half. But investors and strategists will be watching anxiously not just for decoupling from macro drivers, but to see how the uncertainty plays out. “It will not be an easy year for the economy, and the equity market will eventually get through it, but there will be some choppiness,” said BMO Wealth Management Chief Investment Strategist Yung-Yu Ma. “There is a lot of interest to see, now that the price of bitcoin has been corrected a lot, if from this new level it can fulfill the promise that has been held as a possibility for so long,” he added. “It’s going to be a year that shows more of his lines.” The washout from the FTX explosion set up a good proof-of-concept for bitcoin. There has been a huge price correction, but there is more institutional interest in digital assets than ever before, Ma said. The market is more balanced and real, more transparent and capital is more stable. Many speculations have come out, he said. It won’t happen overnight, but investors more than ever want to see the crypto market driven by utility rather than speculation. “What this crypto season has taught us is that we need to find some real use cases for crypto, and for a long time, there was capital flowing into unproductive projects,” said Callie Cox, US investment analyst at eToro. “But I’m hopeful that by 2023 – with the building underway and with scarce capital flowing into productive projects – we’ll see some progress on that front.” Barclays analyst Benjamin Budish said his team believes “crypto assets will continue to behave like high beta risk assets going forward.” However, that correlation could start to break down “as cryptocurrencies can more clearly demonstrate their practical and potentially disruptive use cases.” In addition, Alkesh Shah, strategist of crypto and digital assets at Bank of America Securities, said that crypto assets will trade in line with risk assets “during 2023” but he sees the potential for divergence, “as investors shift their focus from speculative trading to development.” and the adoption of blockchains and applications powered by tokens with utility and cash flow.” Investing in the next two quarters Bitcoin has fallen more than 60% this year and is about 75% from its all-time high since November 2021. The steepest one-time drop this year follows the massive Terra and FTX scandals, but the crypto’s price is still high driven by the macro picture, analysts say. Also, cryptocurrency prices have remained relatively stable since the summer. Prices have been trading sideways, but some think most of the carnage in the market is over and that while they can still fall, they have been at or near the bottom. “Where we stand now, there are probably more people looking to sell to the rally, but there are also people clearly looking to buy dips,” BMO’s Ma said. “That’s why it’s restrained and relatively stable. It’s not clear which side has the stronger impulse right now.” Lyn Alden, the founder of Lyn Alden Investment Strategy, said that it was beaten down the level of accumulation point is good for people with a view of three years or longer in bitcoin, but they “should be concerned” in the near term. “I’m still not sure about the next two quarters because we still have a declining PMI environment, general risk conditions, the Fed trying to tighten monetary policy with rates and the balance sheet,” he said. The Purchasing Managers’ Index, a measure used to gauge the direction of economic activity, is the preferred way to track where bitcoin might go next, he said. “Most bitcoin bulls have been associated with a rising PMI environment, a rising liquidity environment, and most bear markets have been associated with drawdowns in that regard and this is no different.” But in the second half, Alden said he expects higher growth in the global money supply, which would bode well for bitcoin. When the broad money supply increases, bitcoin tends to do well. The Bitcoin bull market occurred during that time. When there is a setback in that growth, as there has been this year, bitcoin tends to struggle, Alden explained. Weak earnings in equities may also help bitcoin, he added. “In 2023, it will be a different story, where earnings are more concerned about the broader asset space, but the overall strength of the dollar and some devaluation will not be a big story,” he said. “That gives assets like gold or bitcoin the opportunity to potentially do better than what we’re seeing in the broad equity space because the weakness may be related to earnings.”
