Bitcoin (BTC) could still be in “significant risk” in 2023 as its price fluctuates depending on macroeconomic conditions.
In a personal comment to Cointelegraph, economist Lynn Alden warned that bitcoin remains bullish after rising in January.
Alden: The bottom of BTC price is ‘process’
Optimism is mounting across crypto as BTC/USD holds broadly 40% higher levels than at the beginning of the year.
But what the rest of 2023 will look like is still a matter of debate, and Alden suggests it’s too simplistic to assume the good times will continue unchecked.
The reason, she says, lies in U.S. lawmakers and the Federal Reserve.
“I expect the BTC bottom to be a process,” she summed up on the current state of Bitcoin.
“BTC price is highly tied to liquidity conditions, which have improved since Q4 2022.”
That recovery has effectively removed any trace of the FTX debacle from the charts, and BTC/USD is now circling its highest level since mid-August.
“The FTX and Alameda collapses dragged the industry down late in Q4 even though many other assets (stocks, gold, etc.) rose. It looks like we’re going back to the FTX-Alameda collapse wouldn’t have happened,” continued Alden.
BTC/USD is trading around $22,600 at the time of writing, according to Cointelegraph Markets Pro data and TradingView Indicated.
‘We are in great danger’
But what lies beyond that “catch-up” may not be so appetizing to bulls.
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The Federal Reserve is now implementing Quantitative Tightening (QT) to remove liquidity from the economy to fight inflation after years of massive liquidity injections that began in March 2020.
These have eased thanks to US domestic politics, but then the status quo could return to the restrictive mood we see throughout Bitcoin’s bear market year of 2022.
“There’s a fair amount of danger in the second half of 2023,” Alden explained.
“Liquidity conditions are currently good as the U.S. Treasury is pulling cash balances under the debt ceiling and this is pushing liquidity into the financial system. The Treasury will replenish cash accounts and draw liquidity out of the system once the debt ceiling is resolved, at which point the Treasury and Fed Both will suck liquidity out of the system, creating a period of weakness for risk assets in general, including BTC.”
If H2 proves to be Bitcoin’s calculation, it ties in with other warnings from market commentators about 2023.
As Cointelegraph reported, former BitMEX exchange CEO Arthur Hayes has a grim outlook for the year, also thanks to Fed policy.
Longer term, however, Alden is confident that Bitcoin will permanently recover from its recent lows.
“While we believe this is a value accumulation zone for BTC over a 3-5 year outlook, traders should be aware of liquidity risks in the second half of the year,” she concluded.
The views, thoughts and opinions expressed herein are those of the author only and do not necessarily reflect or represent the views or opinions of Cointelegraph.