Source: PaxForex Premium Analytics Portal, Fundamental Insight
Bitcoin began 2023 with a nearly 50% rally from its intra-day low to its intra-day peak. While perma-bulls have their sights on fresh all-time highs, following the pattern from previous volatility cycles and extreme losses, it could be different this time. Fundamental developments have supported the massive advance in price action, and a recent analysis highlighted that Bitcoin remains the preferred cryptocurrency asset among professional traders. Open interest Bitcoin futures on the CME rose 6% in 2023 versus a 29% plunge for open interest in Ethereum. It confirms that Bitcoin led the cryptocurrency market higher, but it also means that any correction could see Bitcoin at the front as traders quickly rotate out of their positions.
Ethereum has led development versus Bitcoin, but the Ordinals Protocol has caused developers to revamp Bitcoin projects. The Ordinals Protocol allows for the storage of non-fungible NFT tokens on the Bitcoin blockchain. It added to the rally in Bitcoin, but obstacles exist for NFTs to take off, and until those are fixed, the hype could quickly fizzle out. The lack of miner revenue from blockchain fees ranks among the most pressing issues. Consolidation in the professional Bitcoin mining sector adds to centralization problems and highlights difficulties in sustaining economically viable income from securing the blockchain.
Since the US Dollar settles most Bitcoin trades, as it is the quote currency, US monetary policy emerged as a key component Bitcoin traders must consider. The US Federal Reserve could hike interest rates a few more times before holding rates steady for an unknown period. Despite comments by Fed Chief Powell about the start of the disinflationary processes, traders should remember that Powell dismissed inflation as transitory and failed to act, adding to the 40+ year peak in inflation. Therefore, traders should take his assessment cautiously, as he was wrong countless times before. Inflationary and stagflationary risks persist, which could apply downside pressure on Bitcoin throughout 2023.
The forecast for the BTC/USD has cautiously turned bearish in the short term following a powerful advance off depressed levels. Price action appears ripe for a temporary correction until the next catalyst emerges. The Ichimoku Kinko Hyo Cloud turned sideways and is narrow, making it vulnerable to a bearish crossover. Volatility could increase after the Kijun-sen, and the Tenkan-sen, flatlined, suggesting the absence of directional momentum. Traders should also monitor the CCI after a negative divergence formed in extreme overbought territory followed by a breakdown. This technical indicator has plenty of downside potential, and a move below zero could trigger the anticipated correction. Will bears overpower bulls and regain complete control over the BTC/USD to drive price action into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the BTC/USD remain inside the or breakdown below the 22,590 to 23,510 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 23,190
- Take Profit Zone: 19,850 – 20,820
- Stop Loss Level: 24,300
Should price action for the BTC/USD breakout above 23,510, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 24,300
- Take Profit Zone: 25,150 – 25,970
- Stop Loss Level: 23,510
Open your PaxForex Trading Account now and add this currency pair to your forex portfolio.
