Decentral Block Post

Undoubtedly, 2022 was one of the worst years for Bitcoin (BTC) buyers, primarily because the asset’s price dropped by 65%. While there were some explicit reasons for the drop, such as the LUNA-UST crash in May and the FTX implosion in November, the most important reason was the U.S. Federal Reserve policy of tapering and raising interest rates.

Bitcoin’s price had dropped 50% from its peak to lows of $33,100 before the LUNA-UST crash, thanks to the Fed rate hikes. The first significant drop in Bitcoin’s price was due to growing market uncertainty around potential rate hike rumors in November 2021. By January 2022, the stock market had already started showing cracks due to the increasing pressure of imminent tapering, which also negatively impacted crypto prices.

Fast forward year, and the crypto market continues to face the same problem, where the headwinds from the Fed rate hikes have restricted substantial bullish moves. The worst part is that this regime may last much longer than the marketparticipants expect.

Clues emerge from the 1990s dot-com bubble

The dot-com bubble of 1999-2000 could teach investors a lot about the current crypto winter, and it continues to paint a grim picture for2023.

The tech-heavy Nasdaq Composite inflated to enormous levels by the early 2000s and this bubble burst when the Fed began raising interest rates in 1999 and 2000. As credit became more expensive, the amount of easy money shrank in the market, causing the Nasdaq to drop from its peak by 77%.

Undoubtedly, 2022 was one of the worst years for Bitcoin (BTC) buyers, primarily because the asset’s price dropped by 65%. While there were some explicit reasons for the drop, such as the LUNA-UST crash in May and the FTX implosion in November, the most important reason was the U.S. Federal Reserve policy of tapering and raising interest rates.

Bitcoin’s price had dropped 50% from its peak to lows of $33,100 before the LUNA-UST crash, thanks to the Fed rate hikes. The first significant drop in Bitcoin’s price was due to growing market uncertainty around potential rate hike rumors in November 2021. By January 2022, the stock market had already started showing cracks due to the increasing pressure of imminent tapering, which also negatively impacted crypto prices.

Fast forward year, and the crypto market continues to face the same problem, where the headwinds from the Fed rate hikes have restricted substantial bullish moves. The worst part is that this regime may last much longer than the marketparticipants expect.

Clues emerge from the 1990s dot-com bubble

The dot-com bubble of 1999-2000 could teach investors a lot about the current crypto winter, and it continues to paint a grim picture for2023.

The tech-heavy Nasdaq Composite inflated to enormous levels by the early 2000s and this bubble burst when the Fed began raising interest rates in 1999 and 2000. As credit became more expensive, the amount of easy money shrank in the market, causing the Nasdaq to drop from its peak by 77%.

The United States December nonfarm payrolls report showed a growth of 223,000 jobs, above the market's expectation of an increase of 200,000 jobs. While this shows that the economy remains strong, market observers shifted their focus to the slower wage growth of 0.3% for the month, below economists’ expectation of 0.4%. 

In addition, the euro zone’s headline inflation dropped from 10.1% in November to 9.2% in December. Both economic data boosted hopes that the central bank’s aggressive rate tightening may slow down. This triggered a rally in the U.S. and European stock markets.

However, the reaction in the cryptocurrency space remains muted, with Bitcoin (BTC) continuing to trade inside a narrow range. The crypto investors may be taking a cautious approach due to rumors about Huobi’s insolvency, which the company’s representative said were untrue.

Several analysts believe that the extended period of low volatility in Bitcoin could be followed by an increase in volatility but John Bollinger, the creator of Bollinger Bands, thinks otherwise. Responding to a tweet by Wolf of All Streets podcast host Scott Melker, Bollinger said that “prolonged squeezes are rarely valuable signs.”

Are Bitcoin and altcoins showing signs of a breakout or will they remain stuck inside the range for some more time? Let’s study the charts of the top-10 cryptocurrencies to find out.

The crypto market witnessed the DeFi summer of 2020, where decentralized finance applications like Compound and Uniswap turned Ether (ETH) and Bitcoin (BTC) into yield-bearing assets via yield farming and liquidity mining rewards. The price of Ether nearly doubled to $490 as the total liquidity across DeFi protocols quickly surged to $10 billion.

Toward the end of 2020 and early 2021, the COVID-19-induced quantitative easing across global markets was in full effect, causing a mega-bull run that lasted almost a year. During this time, Ether’s price increased nearly ten times to a peak above $4,800.

After the euphoric bullish phase ended, a painful cool-down journey was exacerbated by the UST-LUNA crash which began in early 2022. This took Ether’s price down to $800. A ray of hope eventually arrived in the third quarter as the market experienced a positive rally led by the Ethereum Merge narrative.

The shift to an environmentally-friendly proof-of-stake (PoS) consensus mechanism was a big step forward. The event also reduced Ether inflation post-merge. During a lead-up to the Merge on Sept. 15, 2021, ETH peaked at over $2,000. However, the bullish momentum faded quickly, turning the Merge into a buy-the-rumor and sell-the-news event.

A similar bullish opportunity could be brewing in Ether as the upcoming Shanghai upgrade scheduled for March 2023 grabs the market spotlight. The upgrade will finally enable withdrawals from Ethereum staking contracts, which are locked presently. The upgrade will significantly reduce the risk of staking ETH.

Bitcoin (BTC) flashed volatility at the Jan. 6 Wall Street open after fresh United States economic data disappointed risk-asset bulls.

Analyst: BTC price in line for $17,000 retest

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD dipping to $16,669 on Bitstamp around non-farm payrolls and unemployment figures.

Both those came in better than expected, with mixed implications for the Federal Reserve having room for maneuver when it comes to its continued tightening of monetary policy.

There may be some chance of relief for Bitcoin, crypto and the broader risk asset stage in the weeks and months to come, with interest rate hikes lessening in intensity.

"Expecting a test of $17k," on-chain analytics resource Material Indicators wrote in part of a reaction on social media.