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FEATURE Crypto Weekly
Bitcoin Could Crash by 2023 as Macro Factors Show Crypto Price Weaknesses
As the Fed normalizes interest rate policy, Bitcoin could drop to $10,000 by 2023.
Three macro factors influence Bitcoin's price, according to the firm.
"We see Bitcoin trading within a broad trading range, bounded by year-to-date intraday levels, with a greater downside risk," Stifel said.
Due to three macro headwinds affecting Bitcoin, its price may plummet 76% from current levels to $10,000 by 2023. Prices of Bitcoin are affected by the global money supply, the 10-Year U.S. Treasury yield, and the equity risk premium of the S&P 500. A tightening of the Federal Reserve, including an increase in interest rates and a reduction in the balance sheet, could have a negative impact on Bitcoin. “In 2022, we expect Bitcoin to trade in a broad trading range bounded by yearto-date intraday trading levels with greater downside risk in 2023 if the Fed continues to normalize its policy in a standard two-year tightening cycle,” Bannister said.
February 2022 | Volume 16
Here are the three macro factors Bannister is monitoring to gauge what may be in store for the price of Bitcoin going forward.
1. The role of Bitcoin in global money supply. "Both the S&P 500 and Bitcoin move with global money translated into dollars, Bitcoin just moves more... If the dollar strengthens then global M2 money growth slows, which could tighten U.S. financial conditions. If U.S. financial conditions tighten, a highpowered speculative asset like Bitcoin would likely fall significantly," Bannister said.
2. "Bitcoin as a function of the real 10-year yield, gold price and oil price." "If 10-year real (after-inflation) TIPS U.S. Treasury yield... rises due to Fed tightening... it restrains Bitcoin upside, and if the rising 10Y TIPS yield pulls gold lower, that also pressures Bitcoin. If Bitcoin divided by gold falls to the low end of its range (Fed tightens)
Bitcoin could drop to $10,000 by 2023," Bannister said.
3. "Bitcoin as a function of how far the Fed can go before cracking stocks." "We believe the 10Y real yield rises no more than 80 basis points in 2022, the first year of a 2-year Fed tightening cycle, but then the S&P 500 (and Bitcoin) break down in 2023 as the Fed keeps going; this is part of 'equity risk premium.' Bitcoin likes a lower equity risk premium, so watch if Fed exit raises equity risk premium (bearish Bitcoin) or lowers equity risk premium (bullish)," Bannister said. A drop to the $10,000 target would represent a total drawdown of 86%. The value of Bitcoin is already 39% below its record high in November, and a drop to the $10,000 target would represent a total drawdown of 86%. A decline like this is not unusual for Bitcoin, since the extremely volatile and speculative asset fell 83% from its prior high of about $20,000 in 2018.
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