Bitcoin Is Slipping Back. Why This Week Could Be a Big Test.

February 7, 2023 World Blockchain

BitcoinBTCUSD –0.32% and other cryptocurrencies slipped Monday. After an extraordinary period for crypto prices, traders face another week of catalysts that could test the resolve of bulls who have notched big gains this year.

The price of Bitcoin has fallen 2% over the past 24 hours to $22,800. Bitcoin is up almost 40% so far in 2023—hitting six-month highs above $24,000 in recent trading—amid a rally in digital assets driven by improved risk sentiment among investors and optimism that the worst of a brutal “crypto winter” is over. While Bitcoin remains around just a third of its late-2021 high, it is now firmly above the two-year lows of the bear market, around $15,500, seen late last year.

Cryptos continue to be correlated to stocks, moving in step with the Dow Jones Industrial Average and S&P 500 as investors react to a complex macro backdrop of inflationary pressures, rising interest rates, and looming recession risks. The past week saw cryptos weather the latest Federal Reserve decision and a wave of economic data, with the days ahead filled with remarks from Fed officials, which could swing sentiment amid shifting expectations over the future of rate hikes.

“Bitcoin has survived a week packed with important events and economic data, while maintaining the price around $23,000, but the market may have exhausted reasons to buy the coin and could be subjected to profit-taking sell orders this week,” said Yuya Hasegawa, an analyst at crypto exchange Bitbank.

Indeed, after such a big rally to start the year, some of the momentum behind a rise in Bitcoin prices could be waning. After running up to $23,000 from $17,000 over the course of a few weeks, prices have since stagnated around that level. While the days ahead hold more catalysts for prices, it remains to be seen whether some traders may try to lock in gains after one of the best winning streaks for Bitcoin in years—and that could challenge the resolve of bulls.

Data, however, may suggest otherwise.

“Long-term holders are not yet ready to sell despite the recent run-up in price. Derivatives data remains positive with both the long-short ratio and lending rates showing the bulls are still in control,” said Rachel Lin, the CEO of crypto derivatives platform Synfutures.

In fact, there are indications that the jubilation seen in Bitcoin may actually be spreading to smaller cryptocurrencies, known as altcoins, in a sign that bullishness is becoming more entrenched and retail investors are being drawn back in.

“Altcoins outperformed Bitcoin last week with the [Bitcoin Dominance Index] falling for the first time in several weeks, which shows that the broader crypto market is catching up to Bitcoin’s initial rally and signaling that retail enthusiasm may be returning to altcoins,” Lin said.

Beyond Bitcoin, EtherETHUSD –0.76% —the second-largest crypto—was down 2% to $1,630. Smaller cryptos or altcoins were also lower, with Cardano dropping 2% and PolygonMATICUSD +0.10% slipping 4%. Memecoins were also weak, with DogecoinDOGEUSD –0.92% down 4% and Shiba Inu SHIBUSD –2.55% shedding 5%.