The baseline scenario for 2023 envisages a recession in the United States and a new wave of sell-offs in the stock market. In these conditions, cryptocurrencies would be subject to negative re-pricing, Nansen warned.
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According to analysts, the situation could be changed only by a ФРС lowering of interest rates.
Experts doubted that the peak of the US dollar’s strength—associated with risk-off and a fall in cryptocurrency values—had been reached. They linked the current weakness of the US currency to a sharp drop in inflation and expectations that Chinese authorities would abandon their zero-COVID tolerance policy.
According to observations, the US bond market signals that by May 2023 the Federal Reserve could raise the rate to 4.84% and, in the second half of the year, cut it by 40 basis points.
In Nansen they reminded that such notions contradict the character of Fed Chair Jerome Powell’s speeches. Central bank officials emphasised the strength of the labour market and the risks of insufficient tightening ahead of inflation threats.
Specialists tested the dollar index (DXY) and PMI models, which have a strong correlation. They concluded that the US currency is likely not yet peaked given the absence of a strong cooling of the economy.
The hypothesis that crypto investors would capitulate, which could signal the end of the bear market, did not hold either. For this purpose, analysts analysed an index based on the volatility of Bitcoin and Ethereum put- and call-options, as well as their risk-appetite indicator for the “smart money”.
The latter moved into the “risk-on” zone in May 2022, while the former remained on the opposite side.
In conclusion, the analysts drew parallels between digital asset markets and equities given the increased correlation between them since 2021. The normalization of the risk premia between these asset classes in 2022 heightened the metric’s predictive power.
Experts noted that in 2008 and 2020 the equity risk premium rose to 20% with an average above 5%. Currently, the metric fluctuates in the 8–9% range.
“In the base scenario, ERP will be much higher, […], which would push CRP higher. Therefore cryptocurrency prices will experience a new (and the last?) wave of declines in this cycle, before financing conditions become more favourable for both asset classes,” the specialists concluded.
As reported, former BitMEX CEO Arthur Hayes said that Bitcoin has bottomed out, as nearly all “irresponsible” organisations have run out of BTC to sell.
Earlier, Galaxy Digital founder Mike Novogratz repeated his forecast for the price of the first cryptocurrency to reach the $500,000 mark.
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