While the year 2022 has been centered on the theme of fundamental anxiety about inflation and rising interest rates, it is the theme of the recession that will occupy the media space in 2023. What prospective evolution can we expect from the price of bitcoin if the Western economy enters a severe economic downturn?
Could Bitcoin be a financial safe haven asset in an economic downturn?
We are finally in 2023 and it was time to move forward for the cryptocurrency market which last year sold over 65% of its value. Unfortunately, the price of bitcoin did not serve as a vehicle to hedge against galloping inflation, quite the opposite.
Central banks have adopted an ultra-tight monetary policy to contain the vertical boom of the price regime, implying a marked increase in bond interest rates, a fundamental factor that has produced a bearish effect on the market capitalization of cryptocurrencies.
Bitcoin has never been, is not and never will be an inflation hedge financial asset.
Inflation and rising interest rates were the dominant fundamental pair last year, and while both will remain important in 2023, it is now the likelihood of an economic downturn that takes center stage.
What behavior can be expected from the price of bitcoin during a severe economic downturn? Difficult to give a statistical answer because the life of the BTC does not exceed 13 years, there are only two occurrences of recession:
- The financial crisis of 2008/2009 (the birth of BTC);
- The health emergency of 2020.
Overall, in times of recession, it is the performance of the stock market and the US dollar on the Forex that can influence the dynamics of cryptocurrencies. It seems presumptuous to me to think that cryptocurrencies can be a safe haven in the event of negative economic growth.
To predict the end of the cryptocurrency bear market in 2023, the global economy should offer a soft landing economic picture. Below is a table summarizing the prospective evolution of BTC in 2023, depending on the potential macroeconomic framework.
Table proposing the status of some macro-global criteria according to the prospective economic framework of 2023
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Technical analysis points to a return to volatility for early January
Now let’s go back to the technical analysis of the bitcoin price. The dominant technical factor remains the bearish technical breakout of early November last year, in the wake of the FTX deal. The market remains in a downtrend as long as it holds the major technical resistance at $19/20K and the natural technical target is still set at $11/12K, a price level I have described in my previous technical analysis posted in the Cryptoast columns .
The current stabilization period at $16,000 has a technical source, this is the 50% retracement ratio of the entire bullish phaser that was constructed between the low point of the health crisis and the all time high point of November 2021.
On the other hand, there are bullish technical divergences (see chart below) which maintain the balance of technical forces between the following two scenarios:
- The continuation of the downtrend towards the $11/12K support zone;
- Reintegration with volume of 19/20K$.
The measure of short-term volatility (the 7-day one) arrives on a large support, the market will make its technical choice this first half of January.
Chart displaying Japanese candlesticks in weekly data from Grayscale’s Bitcoin background
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Source: Vincent Ganne
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Vincent Ganne is a market strategist, technical analyst, equity market educator and speaker on BFM Business. With a long experience in the field of analysis, he offers a global approach to financial markets. Both from a macroeconomic point of view and from a microeconomic point of view. Vincent Ganne also uses many aspects of chart analysis with the aim of predicting medium and long-term trends in financial assets.
Vincent Gane
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