Bitcoin’s rise within the past two weeks has made it one of the best-performing assets of the year, according to Bloomberg Intelligence.
The firm’s senior macro strategist, Mike McGlone, compares the rally to a similar recovery in early 2019 – but in a macro environment of contracting liquidity.
Is Bitcoin Back?
In a post to LinkedIn on Wednesday, the analyst said that Bitcoin’s rally from the start of the year until January 17 may either signal either a bottom or a “bouncing bear.” Bloomberg’s bias, he said, is both – but with a key distinction compared to 2019’s early-year turnaround.
“The Federal Reserve is tightening this time around,” he said. The $5,000 pivot about four years ago vs. $20,000 now may portend Bitcoin’s elongated trajectory.”
Bitcoin price has historically moved in four-year cycles, with feverish bull runs in one year followed by dramatic corrections in the next – alongside less active, more modest gains in the intervening years.
Bitcoin retraced from a peak of over $19,000 in late 2017 to a bottom of roughly $3200 in December 2018, before bouncing back to $5,000 by April 2019. In its most recent cycle, Bitcoin peaked at $69,000 in November 2021 before retracing to under $16,000 in November 2022. Today, Bitcoin has already returned above its 2017 highs, prompting debate among analysts around whether history is repeating itself almost exactly four years later.
“Bitcoin’s roughly 80% drawdown to the 2022 low about matches the 2018 bottom, but a key difference is global liquidity is contracting,” wrote McGlone. “It’s unlikely a trough, and recovery for the asset referred to as the fastest horse in the race will be easy.”
The Fed’s Influence
From early 2022 until now, the Federal Reserve has been hastily hiking interest rates to combat record-high CPI inflation in the United States. The ensuing global liquidity crunch has indeed reigned in prices – but also ravaged the crypto market, and forced industry leaders like Coinbase and CryptoCom to downsize substantially.
Most notably, contracting prices have triggered a downward spiral of bankruptcies and forced liquidations, from lending firms, to mining companies, to exchanges like FTX.
By comparison, the Federal Reserve was easing interest rates in 2019 when Bitcoin built its base around $5000. “Another 60 bps of hikes expected into June is Bitcoin resistance” stated McGlone.
Bitcoin’s rally this month was largely spurred by a promising December CPI report, which registered annual inflation at 6.5%, down from 7.1% the previous month. Such signs show investors in both crypto and stocks that the Fed may soon be able to return to a more dovish monetary policy.
Some analysts, however, doubt this is the case. David Kelly – Asset Management Chief Global Strategist for JP Morgan Chase – predicted last week that the Fed will continue hiking rates until May, at which point it will hold its benchmark rate above 5% until the year’s end.
“The question is: will the economy be strong enough to allow them to hold rates at that relatively high level?” asked Kelly at the time.
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