Bitcoin’s rampage higher in 2023 accelerated overnight with the largest cryptocurrency topping $23,000 for the first time since August 2021…
The latest thrust pushed bitcoin back above its 200-day moving-average…
And while Ethereum has also surged, Bitcoin has dramatically outperformed its peers, erasing the year-to-date relative gains of the DeFi surge…
As Bitcoin Magazine’s Dylan LeClair details, one of the most useful models in tracking the cyclical tops for both the S&P 500 Index and bitcoin since March 2020 has proven to be net liquidity, an original model by 42 Macro.
Net liquidity tracks the changes in Federal Reserve total assets, the U.S. Treasury general account balance and the reverse repo facility. A lower net liquidity translates to less capital available to deploy in markets. We find it useful as a key macro indicator to assess current liquidity conditions and how bitcoin trades in the market.
Bitcoin has acted as a liquidity sponge throughout its life and contracting liquidity in all markets has had a significant impact on the bitcoin price and trajectory. Ultimately, that’s one of the main drivers of our core long-term thesis that bitcoin’s growth depends on an environment of perpetual monetary debasement and expanding liquidity to work against current levels of unsustainable sovereign debt and deflationary forces. In the short-term, it’s not clear when overall liquidity will increase again en masse. That’s the trillion dollar question and the topic of conversation on which everyone is speculating. Net liquidity provides a view into that trajectory as a measure that’s updated weekly with fresh data.
Bitcoin is seeing some of its largest relative strength since January 2021, but it also comes at a time when we’re seeing a significant daily uptick in net liquidity after a period of historically low volatility. The uptick is driven by a much lower reverse repo balance since the start of the year. With the Fed’s position of “higher for longer,” a projected view of Core CPI at 3.5% for 2023 and continued balance sheet runoff, we will likely see net liquidity decline — barring a spontaneous or emergency policy reversal.
Price has broken above the short-term holder realized price. That’s happened only a few times in this bear market and these events were short-lived. As this price reflects the average on-chain cost basis of the more recent buyers, it will be key to see if these market participants are looking to sell here at cost or if they will stay to continue with the momentum.
While there is a long way to go in terms of surpassing previous bull market heights, after a year where the enture industry practically imploded, the year-to-date performance is – according to Bloomberg data – the best start to a year in crypto’s history…
However, not everyone is buying this rally, with some suggesting it’s just another ‘dead cat bounce’.
As CoinTelegraph reports, Asia was leading the way into the weekend, with sellside pressure from market makers being absorbed on exchanges.
“Another rally driven by asia bid. TWAP buyers absorbing the sell pressure from MMs. Large spot bid lifting offers & ask wall pulled prior to another short squeeze,” intraday trader ‘Skew’ commented on a composite chart.
BTC/USD annotated charts. Source: Skew/ Twitter
On-chain analytics resource Material Indicators meanwhile flagged ask liquidity being removed on Binance the day prior, this allowing Bitcoin’s initial run beyond the $22,000 mark.
“Volatility continues. Don’t give it all back, be sure to take some profit along the way,” it wrote in part of a subsequent update.
BTC/USD order book data (Binance). Source: Material Indicators/ Twitter
As ever, Bitcoin was far from above suspicion at its latest highs, with some familiar faces still urging traders to prepare for the worst.
“Regardless if this is dead cat relief wave or a reversal on Bitcoin, it is great to see some optimism back in Crypto,” he summarized.
Considering why further gains were coming after the end of the week’s TradFi trading, one popular commentator additionally suggested that traders were being manipulative.
“No one who genuinely wants to buy and own crypto waits until the Friday close each week to execute,” an update read, adding that those buyers’ “aim is clear.”
Finally, while miners are currently seeing some relief after a tough year, potentially rough roads lie ahead.
With the upcoming Bitcoin halving event due in 2024, mining BTC will become even more difficult and possibly more expensive for miners, providing more stress on already thin margins. On the upside, the last halving event in 2019 was followed by a 300% gain for BTC the year before.