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Bitcoin and other cryptocurrencies settled on Tuesday, remaining at a consolidated level after a price rally since the start of 2023. The cryptocurrency's momentum could be down and the digital asset could be heading lower.
Bitcoin is up less than 1% in the last 24 hours to $23,000. The biggest digital asset is up 40% year-to-date, hitting a two-year low and trading at its highest level since last summer; a trend that many cryptocurrency traders are betting is the beginning of the end of a brutal bear market. But the momentum slowed considerably in February as Bitcoin failed to hold above $24,000 and made a steady return to $23,000.
"Bitcoin has seen its countertrend slip in response to short-term overbought conditions," said Cathy Stockton, head of technology research group Fairlead Strategies. “We expect Bitcoin to decline further to support our short-term bearish trend and note that its short-term bullish momentum is largely gone. Initial support is at the 200-day moving average around $19,700.”
The recent rally in cryptocurrencies has been accompanied by similar moves in the stock market, with the Dow Jones Industrial Average and S&P 500 rising this year as investors turn to risk-sensitive assets such as digital assets and stocks. Correlations between asset classes mean that Bitcoin and its peers will react similarly to macro stimuli related to inflation, interest rates and recessionary risks, and there are a number of announcements from Federal Reserve officials this week.
But as Matthew Siegel, head of digital asset research at fund manager VanEck, pointed out in a recent note, there are other technical factors underlying bitcoin that support the market's argument that the "cryptozyme" is over.
Among these factors are that Bitcoin has never fallen for two calendar years in a row, 2022 was one of the worst years on record for the asset, and the current bear market has lasted more than 380 days, which is longer than average. Siegel noted that November also saw "significant selling" by long-term holders -- people who have held bitcoin for at least six months -- another sign that the bear market collapse is over. Meanwhile, Bitcoin's leverage ratio has fallen sharply, and Siegel suggests that market participants should be cautious.
In addition, some of the trends in the global money supply are due to Bitcoin, which is closely related to the growth of the M2 money supply, Siegel said. M2 growth recently hit 0% year-over-year for the first time, but the three-month rate of change in the global money supply is now above the 12-month rate, which is "historically very positive for bitcoin's bottom." Siegel said: . . "Investors Focusing Only on the Fed May Miss Improvements in Global Liquidity."
Ethereum , the second-largest cryptocurrency after bitcoin, rose less than 1% to $1,650. Smaller cryptocurrencies, or altcoins , were little changed with Cardano down less than 1%, though Polygon rose 3%. Memecoins were slightly weaker, with Dogecoin down 1% and Shibain around 4%.
Email Jack Denton at jack.denton@barrons.com