2023 could mark a pivotal year for cryptocurrencies, as we witness a landscape riddled with macro and technical bull and bear arguments for Bitcoin.
Amidst the turmoil with US banks, the bailout of Silicon Valley Bank depositors has highlighted the appeal of self-custodied bearer assets like Bitcoin, whose monetary policy is independent of central bank policymaking.
The Bull Case: Crypto as an inflation hedge
As the US government continues to amass debt, Bitcoin may serve as a hedge against the debasement of the dollar.
Additionally, central banks worldwide have been buying record amounts of gold, and we can anticipate a potential “big bang” when countries on the fringes of the financial system adopt private, censorship-resistant bearer assets like Bitcoin.
Bitcoin’s current cycle bears striking similarities to previous cycles, and there are several technical arguments that support a bullish case for Bitcoin.
Among them, Bitcoin has historically never fallen for two consecutive calendar years, and the current bear market’s duration and magnitude are close to historical averages.
Furthermore, Bitcoin’s leverage ratio has dropped, and both calendar futures and perpetual swaps have recently traded in a state of backwardation, which suggests the market was heavily hedged for further downside risk.
The Bear Case: Mining is struggling
However, there are also several bear arguments for Bitcoin.
Regulation continues to tighten, with moratoriums on fossil-fuel-based Bitcoin mining and the lack of a Bitcoin spot ETF in the US. Additionally, Bitcoin mining hash rate is too high relative to the price to provide a profitable backdrop for miners, and the network’s “security budget” faces structural issues as block rewards fall.
Finally, Bitcoin’s lack of smart contract functionality is hindering adoption, and its layer 2 progress has been disappointing.
Despite these challenges, there are some reasons for optimism. For example, some mining moratoriums are being loosened in countries like Kazakhstan and Iran, and Russia has signaled plans to build more power generation capacity in Siberia for Bitcoin miners. Furthermore, the upcoming Bitcoin Halving Event in Spring 2024 could trigger a new bullish cycle.
Reasons To Be Cheerful: Financial Crisis is good?
As the world’s financial markets await the Federal Reserve’s rate hike decision with bated breath, there is an undercurrent of trepidation surrounding the potential repercussions on the fragile banking sector.
The recent collapse of Silicon Valley Bank and Silvergate Bank, coupled with the UBS merger with troubled Credit Suisse, have sent shockwaves throughout the global financial system.
The Federal Reserve faces a delicate balancing act: should they prioritize banking stability and risk fueling market uncertainty, or take a more aggressive approach to curbing inflation and risk exacerbating the banking crisis?
The fallout from this decision will undoubtedly reverberate throughout the financial ecosystem, with cryptocurrencies poised to capitalize on the inevitable volatility.
Asia’s Burgeoning Crypto Ambitions: Look East?
Despite the regulatory headwinds facing the cryptocurrency industry in the United States, Asia is emerging as a fertile ground for digital asset innovation. Hong Kong, in particular, is making strides to position itself as the premier hub for cryptocurrencies.
Bolstered by support from Beijing, Hong Kong’s efforts to establish a comprehensive regulatory framework for virtual assets have attracted significant interest from crypto firms worldwide.
With retail trading of cryptocurrency assets and a regulatory regime for Centralised Exchanges (CEXs) slated for June 1, 2023, and stablecoin regulations anticipated for the following year, the city’s metamorphosis is in full swing.
This blossoming interest in Asian crypto markets fuelled February 2023’s explosive “Chinese crypto narrative“, which witnessed Chinese crypto projects, such as Conflux, skyrocketing nearly 1,000%.
In conclusion, as a call option on an alternative financial future where the US dollar’s hegemony is less pronounced, Bitcoin and crypto markets more broadly retain attractive properties due to decentralization, self-custody and in some cases fixed supply.
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