The cryptocurrency market was not in its best form throughout 2022. Falling cryptocurrency behemoths and plummeting prices added to the ongoing struggle. However, 2023 began with a bang as most of the cryptocurrencies rose by 30–40%, depicting signs of a bullish market.
However, a few factors point to the emergence of another cryptocurrency bubble. Let us take a deeper look at these key factors.
Cryptocurrency technicals don’t seem robust
Even though Bitcoin put up a rally from $16,622 to a high of $24,167, the rally in January was one of the longest streaks for BTC. However, the rising prices were accompanied by a lack of liquidity and short-squeeze dynamics. An equal reversal is not unlikely and could end up ugly.
Ever since the FTX saga, market liquidity has been on the lower side. According to the data from Kaiko, BTC’s market depth dropped from 14,000 BTC before the fall of FTX to 6,000 BTC post-event.
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One other factor is a potential short squeeze setup. This usually occurs when traders are shorting BTC prices, causing a trigger and pushing the price up.
“The entire rally has been built on the backbone of continuous market shorts. The move might be interpreted as organic, but it is entirely engineered by limited traders,” Bitfinex analysts wrote in a January report.
Favorable macro environment
Another favorable factor that is pushing cryptocurrencies up is the macroeconomic scene, which portrays an image that inflation has eased. This has been followed up with a thought that the central banks will lower the rates moving forward. This speculation is greatly attractive for riskier assets, including cryptocurrencies.
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Bitcoin and the S&P 500 recently closed in on the golden cross, a bullish technical formation. This generally happens when the 50-day SMA moves above its 200-day SMA, which creates a cross on the chart. According to Tradingview, it is the first golden cross for BTC since September 2021. However, it should also be noted that not all golden crosses end up being rallies.
