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A standalone bitcoin rally or a high beta move? Either way, bitcoin holders are celebrating the latest action to kick off 2023. Bitcoin has shown significant momentum and has driven all key short-term price levels on daily moving averages and on-chain prices. In fact, every major high beta play in the market is showing the same strength, giving us more caution than confidence in this latest short squeeze featured last week in “Bitcoin Rips to $21,000, Shorts Demolished in Biggest Squeeze Since 2021.”
As much as we would like to see an independent bitcoin move higher, there are plenty of signals in the market that the opposite is likely. We have seen a relatively significant bounce in the most oversold names of 2022, with a brief contraction and subsequent round of FOMO from the 2022 lows.
This recent spike in risk has sent implied stock market volatility to new lows as the US dollar continues to weaken in the near term, the National Financial Conditions Index (NFCI) eases, and the global M2 money supply tightens. contracts at a much slower rate relative to the latter. a few months.
Global M2 mapped against bitcoin’s year-over-year growth.
Font: Bloomberg
Net liquidity, a model we highlighted in our previous article, shows contraction compared to last year, but hasn’t changed much in recent months. If we want a sustained rally to continue, we would like net liquidity growth over the next few months to be the main driver behind this move.
In minutes of their recent meetings, members of the Federal Reserve have expressed concern about the “unwarranted easing of financial conditions” caused by rising risky assets and subsequently hampering their efforts to cool inflation.
With the Bank of Japan deciding whether to ease monetary policy, this could cause the carry trade to ease. We believe this is one of the few ways in which the dollar could fall at the same time that global stock markets weaken, with stocks appreciating due to the rising cost of US capital.
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