The crypto market showed signs of exhaustion in trading on Friday as Bitcoin (BTC) bulls lacked the momentum to muster a breakout above $53,000. At the same time, sticky inflation had investors across financial markets reevaluating their plans moving forward now that it looks like the Fed may not cut interest rates until June at the earliest.
“I don’t understand why people are surprised that PPI and CPI came in hotter than expected. Inflation has been running hot for the past few months,” said Banrion Capital Management co-founder and Chief Investment Strategist Victoria Bills in a conversation with Kitco Crypto. “Previously, the way people had been evaluating financial markets did not take inflation into account, because we did not have to worry about interest rates. But now that we have high interest rates, PPI and CPI have become very important for people to understand when rates are going to come down.”
“The broader market expectation is that everyone, at least when it comes to bankers and folks on Wall Street, really wants interest rates to get cut, because that means that the cost of borrowing and the cost of lending becomes significantly decreased,” she said. “That means they can lend out capital at lower rates, which enables them to help circulate money into the economy more freely.”
Stocks oscillated between positive and negative territory on Friday, but ultimately succumbed to the negative outlook gripping the market. At the closing bell, the S&P, Dow, and Nasdaq were in the red, down 0.48%, 0.37%, and 0.82%, respectively.
Data provided by TradingView shows that Bitcoin continued to trade sideways in a range between $51,600 and $52,620, with bears slowly chipping away at the strength of bulls as they look to drop BTC back below $50,000.
BTC/USD Chart by TradingView
With the market now in consolidation, “The ultimate question is what the price of Bitcoin is going to do in the upcoming period,” said MN Trading founder Michaël van de Poppe.
“The price of Bitcoin has been accelerating. Prior to the ETF, a rally from $25,000 to $49,000 [took] place. Since then, the sentiment quickly shifted towards an ultra-negative sentiment indicating that the markets had to go down to $30K due to the outflow of GBTC,” he said. “However, markets reversed from $39K indicating massive interest in the Bitcoin Spot ETFs resulting in a peak at $53K and a constant inflow.”
Poppe warned that basing trading decisions on sentiment is perilous because “Sentiment is always a wrong indicator.”
“The strength of the markets [is] reflected in the actual price action, and sentiment always overshoots as emotions are reflected into scenarios, hence why emotions have a bad impact on trading/investing,” he said. “Emotions always exceed reality and sentiment overshoots the price action by a mile, that’s why people start to lose money. Markets are pricing in events at all times, whether you like it or not.”
Based on this understanding and the current price action for Bitcoin, Poppe said a “relatively strict and simple gameplan” moving forward should include a plan for trading and a plan for investing.
“Ultimately, a trade is defined on the horizon that you’re looking to hold the asset (including the timeframes you’re using for your analysis),” he said. “If your horizon is relatively short, then it might not be +EV to buy an asset that appreciated 35% in 10 days (Bitcoin). Same goes for swing trading purposes.”
“Let’s assume that the risks of a correction have increased,” Poppe said. “If you think that a correction to $45K has a 30-35% chance, while a potential upward push to $60k has a 60% chance, it might be -EV to take the trade. If the market corrects 20% from $55k to $46k, then the odds of an upward move versus a downward continuation flip more in favor of a long. That’s the methodology to focus on when it comes to trading.”
Your investing plan “comes down to your risk appetite and horizon,” he said. “If you want to start investing, I would suggest waiting for a standard 20-40% correction on Bitcoin to happen. You’ll tackle a few important points: buying in corrections (the opposite of the sentiment at that point) and being able to control those emotions.”
“However, if your horizon is 2-3 years from now and you expect to see Bitcoin at $150K+ in that window, then there’s no big issue with starting to scale in at these prices,” he added. “Once again, there’s more confirmation to enter the markets in a correction than in an upward push.”
s personal expectations, Poppe said that recent macroeconomic events, including the CPI and PPI reports, “suggest that we’re going to see a correction.”
He said multiple factors could lead to this outcome, including a reduction of flows into the spot BTC ETFs or the selling of Bitcoin by “other parties involved in the markets outside of the ETFs,” which could result in “a switch in sentiment and substantial correction.”
“Those corrections, with the current sentiment, are going to be swift,” he warned. “I don’t know exactly from where these will happen, but given the data, it’s reasonable to suspect that the markets are peaking between $53-58K and will get a 20-40% correction from there.”
“Whether it’s going to be in the coming weeks, or whether it’s in March, I don’t know,” Poppe concluded. “What I do know is that markets are moving organic and do have those corrections, despite the overall sentiment.”
Altcoins mixed to close the week
Altcoins ended the week mixed, with a slight majority of the tokens in the top 200 trading in the red on Friday.
Daily cryptocurrency market performance. Source: Coin360
Livepeer (LPT) led the gainers with an increase of 74.9%, while Worldcoin (WLD) climbed 31%, and Siacoin (SC) gained 20.2%. VeThor Token (VTHO) led the losers with a decline of 17.8%, followed by a loss of 17.45% for Nervos Network (CKB) and a decline of 12.9% for ZetaChain (ZETA).
The overall cryptocurrency market cap now stands at $1.94 trillion, and Bitcoin’s dominance rate is 52.5%.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
