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An independent Bitcoin rally or a high beta move? Either way, bitcoin holders are celebrating the latest action to start 2023. Bitcoin has shown significant momentum and has propelled all key short-term price levels through daily moving averages and on-chain realized prices. In fact, every major high-beta game on the market shows the same strength, giving us more caution than confidence in this latest short squeeze highlighted last week in “Bitcoin rips at $21,000, shorts demolished in biggest squeeze since 2021.”
While we would like to see independent bitcoin rise, there are plenty of signs in the market that the opposite is likely. We saw a relatively significant rebound from the most oversold names of 2022, with a short squeeze and subsequent cycle of FOMO from the 2022 lows.
This recent uptick in risk has seen implied stock market volatility hit new lows as the US dollar continues to weaken in the near term, the National Financial Conditions Index (NFCI) loosens and the global money supply M2 is contracting at a much slower rate compared to the last few months.
Global M2 mapped to bitcoin’s year-over-year growth.
Source: Bloomberg
Net liquidity, a pattern we highlighted in our previous article, shows a contraction from a year ago but hasn’t changed much in recent months. If we want to see a sustained recovery continue, we would like the growth in net liquidity over the next two months to be the main driver accompanying this movement.
In their recent meeting minutes, members of the Federal Reserve expressed concern over the “unwarranted easing of financial conditions” caused by soaring risky assets and subsequently hampering their efforts to calm the downturn. ‘inflation.
With the Bank of Japan deciding whether or not to ease its monetary policy, this could lead to a loosening of the carry trade. We see this as one of the few ways the dollar could fall at the same time as global equity markets weaken as stocks revalue on rising US capital costs.
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