Is the crypto bear market over? A look at the key factors that influence Bitcoin price

Is the crypto bear market over? A look at the key factors that influence Bitcoin price

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It looks like year 2023 is off to a good start – at least for what concerns the crypto market 🤞

After 12 moths of dropping, and another 2 months of barely any movement, Bitcoin price started showing signs of recovery – and rather encouraging ones.

As we know, the crypto market evolves in cycles, defined mostly by Bitcoin’s 4-year halving routine. Last November, we made a case about Bitcoin bottoming, i.e. reaching the lowest point of its cycle (read more about it here). This month’s 40% rally brings an additional element to prove this case, even though Bitcoin is never short of surprises 😅

Other than its own cycle, Bitcoin price is strongly influenced by macroeconomic factors, which impact the markets’ willingness to invest. Here too, it seems like the bottom may be already in: as key inflation, business, and manufacturing indexes start showing signs of optimism 📈, so do the markets, and it is possible that S&P500 and Dow Jones have indeed reached their lowest points in October and September 2022.

More good signs come from the crypto industry players and investors: Bitcoin miners raising money, companies with $BTC on their balance sheet duly HODL it, and Bitcoin bears seem to get increasingly tired.

Let’s see that in more details.

Better macro, better markets

After the 2021 euphoric spending pushed by low interest rates and Covid-induced money printing, stock markets have turned red by mid-2022 as Central Banks started to tighten the liquidity tap 🚱

The Fed’s announcements of interest rates hikes have been triggering stock and crypto markets’ drops throughout 2022, but even if several small hikes are still expected, they do not seem to scare the markets anymore. However, the Fed announcements are still worth watching for, the next one planned for 🗓️ tomorrow, January 31th.

Inflation indexes are slowly decreasing, with the US CPI (consumer price index) at 6.5%, and US core PCE (Personal Consumption Expenditure, index that sources data from businesses) decreasing to 4.4%.  Core PCE is particularly known as the gauge that the Fed uses to measure the inflation, and see it decreasing is a good sign.

This means that the Fed might not need to further hike interest rates to control inflation, which is always an encouraging sign for the markets.

In the Eurozone, the inflation is slowly decreasing too, hitting 9.2% this month.

Another good macro signs come from the Manufacturing Purchasing Managers’ Index (PMI), which measures the activity level of purchasing managers in the manufacturing sector. Announced last week, both the US and the EU Manufacturing PMI came stronger than expected:

Bitcoin investors 💰

With macro climate becoming better, institutional investors are the first to (re)turn their eyes to Bitcoin… and as it happens, they can influence it significantly. A recent study by Matrixport, a crypto investment company, showed that 35% of Bitcoin’s 40% price rise occurred during the US trading hours, indicating that US institutional investors are the most active Bitcoin buyers now with a contribution of up to 85%.

In the beginning of the month, asset management giant BlackRock announced its intentions to add Bitcoin derivatives to one of its funds, signalling to the whole financial market its commitment to the main cryptocurrency.

Far from being the biggest, but surely one of the most famous Bitcoin investors is Tesla 🚘, and the market follows its Bitcoin operations closely. The company offloaded 75% of its $BTC investment in the second quarter of 2022 (with $64 million profit), but did not sell any more in the depths of the bear market that followed, registering impairment charges of $34 million. It’s not a loss until you sell it, and Elon Musk knows it well 😎

Goldman Sachs ranking Bitcoin as the best-performing asset in 2023, both in absolute and risk-adjusted terms, is another optimistic sign.

Miners recovery ⛏️

Bitcoin miners were having hard times in the second half of 2022, when $BTC price was hitting its lows, all while the network difficulty – its all-time high. Some of them did capitulate and turned off the machines, but most have clung to their activity and managed to survive, even barely: last month, Greenridge miner avoided bankruptcy by receiving a $74 million lifeline from New York Digital Investment Group.

This month was marked by Adam Back’s Blockstream raising $125 million to expand its Bitcoin mining operations, adding capacity for institutional hosting customers.

Bitcoin miners are one of the key players in the market, and their well-being is often correlated to the price, in both directions.

Markets are very psychological, and this month’s Bitcoin rally has given a huge positive impulse, which is likely to endure. The way the price has risen was cheerful too: almost in a straight line, without any significant correction. This has exhausted many bears 🐻 who bet on the downside throughout the rally, and created an enormous momentum for the bulls 🐂

Bitcoin spot volumes are recovering, and the Fear and Greed index has finally left the “Fear” zone and entered the “Greed” one. At this point, one might suggest a soon price correction, but of course with Bitcoin we never know 😅