Cryptocurrency markets are currently benefiting from increasing interest in the online world, mainly because the start of 2023 turned out to be more bullish than expected. Global market capitalization is back above $1 trillion, driven not just by Bitcoin, but also by multiple altcoins.
When compared to the lows of 2022, some cryptocurrencies managed to stage an impressive rebound. However, looking at the broader picture, there's still plenty of ground to cover until all the losses are negated. That is why a lot of crypto investors are pondering whether the crypto winter is about to end, or whether this is just a corrective move, still part of a bearish trend. a
Bitcoin and altcoins bullish to start the year
Despite bearish calls, suggesting that Bitcoin might fall further towards the $10,000 area, the start of this year has seen BTC rebound by 40% from the lows. Gains in the largest crypto token incentivized market participants to increase their exposure to other altcoins as well, including Ether, Binance Coin and some other less-popular names like Aptos or Fantom.
According to easymarkets, a retail CFD brokerage that also offers crypto trading, the market is continuing with the same volatile nature. That means traders should not take the recovery for granted, since prices could start a new downfall at any point.
From a technical standpoint, cryptocurrency prices were heavily oversold at the end of December 2022. Stocks also managed to rebound from the lows and combined with a weakening US Dollar, conditions were set for a rise in digital assets as well, dubbed by analysts as a “dead cat bounce”.
If 2023 starts on an upbeat tone, that can be a catalyst for further gains, but when trading cryptocurrencies, one should always remember that technical levels matter. As time goes by, buyers need to step in at higher and higher levels, suggesting they are willing to bid up prices on top of recent gains.
Caution is still advised, especially if new selling is driven by negative news. Genesis is yet another name in the crypto industry that filed for bankruptcy this year, joining a list of other names that contributed to a loss of confidence in digital assets.
Speaking of fundamentals, conditions are not yet set for a well-established bull run. Traders should be aware that the gains seen in 2020 and 2021 have been driven by low interest rates, fiscal stimulus and excess liquidity in the financial industry.
Central banks were forced to tighten monetary policy by hiking interest and replacing QE with QT. Markets are already pricing peak tightening, yet interest rates are still high, meaning excess liquidity probably won't occur anytime soon.
Cryptocurrencies are speculative instruments, benefiting during periods when there is a high appetite for risk. Right now, the opposite is happening, since flows are favoring safe assets like government bonds, bank deposits, or cash.
The bottom line is that an end to the crypto winter requires further improvements in the technical and fundamental picture. History suggests the bottoming process for digital asset prices might take longer than market participants expect.