What evolution is in store for Bitcoin in an economic downturn?

While 2022 will focus on major concerns around inflation and rising interest rates, it is recession that will dominate the media space in 2023. What prospective evolution of the price of bitcoin can be expected if the Western economy enters a major economic recession?

Can Bitcoin Be a Safe Financial Asset During an Economic Downturn?

It’s finally 2023 and it’s time to jump into the crypto market lost more than 65% of its value last year. Unfortunately, the price of bitcoin has not quickly served as a hedge against inflation, in fact the opposite has happened.

Central Banks have adopted a massively restrictive monetary policy to keep the vertical boom in the price regime, which implies a significant increase in bond interest rates, which is the main factor driving down the crypto market capitalization.

Bitcoin has never been, never will be, and never will be an inflation-hedged financial asset.

Inflation and rising interest rates were the dominant fundamental pair last year, and both will remain important in 2023, but now it’s the possibility of an economic downturn that takes center stage.

What behavior can be expected from the price of bitcoin during a major economic recession? It is difficult to give a statistical answer, because the lifetime of BTC is not more than 13 years, there are only two recession events:

  • 2008/2009 financial crisis (birth of BTC);
  • The health crisis of 2020.

Generally, during recession it is the trend of the stock market and the US dollar in Forex that can affect 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.

In order to foresee the end of the cryptocurrency bear market in 2023, the global economy will have to offer a “soft landing” type of economic framework. Below is a table summarizing the prospective evolution of BTC in 2023 depending on the potential macroeconomic framework.

Table proposing the status of certain global-macro criteria according to the perspective economic framework of 2023

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Technical analysis points to a return to volatility for early January

Now let’s get back to the technical analysis of bitcoin price. The dominant technical factor remains the technical crisis that occurred at the beginning of November last year after the FTX case.. The market remains in a downtrend as long as it holds key technical resistance at $19/20K and the natural technical target is still set at $11/12K. Kryptoast.

The current stabilization period at $16,000 has a technical source, this is the 50% retracement rate of the entire bullish phaser built between the health crisis low and the November 2021 historical high.

On the other hand, there are bullish technical spreads (see table below) that maintain the balance of technical forces between the following two scenarios:

  1. Continuation of the downtrend towards the $11/12K support zone;
  2. Reintegration at $19/20K.

Measurement of short-term volatility (within 7 days) If it comes to a big support, the market will make its technical choice in the first half of January.

Chart exposing Japanese candles on weekly data from Grayscale’s Bitcoin background

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Vincent Ganne analyzes the cryptocurrency markets every day in our Premium group

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Source: Vincent Ganne

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