Bitcoin, the leading cryptocurrency, has experienced a volatile journey in 2023. After a promising start to the year, it has faced challenges in recent weeks. As a professional researcher and writer, we analyze the latest bitcoin trends, macro risks, and on-chain metrics to determine the best time to buy bitcoin and assess the risks involved.
Bitcoin’s Recent Performance
Bitcoin started the year at $16,000 and has seen a remarkable increase of 57%, reaching $25,048 so far this year. Optimism soared last month when the price even surpassed $30,000 due to hopes of the Federal Reserve’s tightening cycle nearing completion and inflation subsiding.
Deteriorating Macro Backdrop
However, recent weeks have witnessed a retracement in bitcoin’s price. The primary reason behind this appears to be a deteriorating macro backdrop. Tight labor markets, persistently high inflation, and Federal Reserve Chair Jerome Powell’s acknowledgment of a long journey to lower inflation have contributed to a bearish sentiment.
Market Underpricing of Rate Hikes
Market expectations currently assign a mere 5% chance of a 25 basis point increase by the Federal Open Market Committee (FOMC) in June. From our analysis, we believe the markets are underpricing the likelihood of such a hike. Given the ongoing inflation and growth dynamics, a 25 basis point increase in June is probable, which could have a bearish effect on bitcoin.
Assessing the Right Time to Buy Bitcoin
Considering the bearish macro backdrop and neutral on-chain/flow metrics, we advise caution if you have a short-term horizon of two to four weeks. The current conditions suggest that now may not be the optimal time to buy bitcoin.
Long-Term Investment Potential
Despite the short-term bearish outlook, we maintain a bullish sentiment on bitcoin as a long-term investment for the next one to three years. Bitcoin’s recent rally and the broader bullish sentiment towards risk assets indicate positive prospects in the long run.
Factors Influencing Bitcoin Prices
The recent rise in bitcoin’s price can be attributed to the goldilocks market regime and falling inflation, which allowed the Federal Reserve to slow its rate hikes. On the other hand, events such as the collapse of the FTX crypto exchange and concerns about rising interest rates have contributed to the decline in bitcoin’s price.
Potential Drawdowns and Risks
Analyzing historical data and correlations with the NASDAQ, we estimate that a 2000-style crash in the NASDAQ could result in a 72% decline in bitcoin prices. It is important to consider potential drawdowns and risks when investing in bitcoin to ensure an appropriately sized exposure.
Regulation and Crypto Markets
Regulatory developments in the crypto space have been gaining momentum. While increased regulation provides more certainty for investors, excessive regulation could stifle innovation. The ongoing regulatory backdrop should be closely monitored to assess its impact on crypto markets.
Tips for Investing in Bitcoin
When investing in bitcoin, it is crucial to understand the risks involved and the unique characteristics of cryptocurrencies. Dollar-cost averaging can help manage volatility, and diversifying your crypto portfolio is essential to mitigate risk. Moreover, choosing a reputable crypto exchange and having a secure crypto wallet are crucial steps to consider.
While the short-term outlook for bitcoin is slightly bearish, we believe it holds long-term investment potential. Investors should carefully assess the macro backdrop and on-chain metrics before deciding on the right time to buy bitcoin. Additionally, understanding the risks and implementing sound investment strategies will contribute to a successful crypto investment journey.
Disclaimer: The information provided in this article is for informational purposes only and should not be considered financial advice. Investing in cryptocurrencies carries inherent risks, and individuals should conduct their own research and