The potential future price of Bitcoin (BTC), which significantly drives the cryptocurrency market, largely depends on its correlation with the U.S. Dollar Index (DXY).
Recent data shows that Bitcoin and cryptocurrencies experienced a collapse as investors anticipated the Federal Reserve’s decision to temporarily halt interest rate hikes in September.
Bitcoin’s price dropped below the $27,000 support level, and subsequent attempts to break above this level proved to be challenging, even as of October 1st.
The increasing correlation between Bitcoin and the Dollar Index in December supported its rise throughout 2023, with Bitcoin’s price surging by approximately 95% to reach its highest levels in April, exceeding $30,000.
However, the Terra incident triggered a market collapse, leading to the emergence of a bear market that cryptocurrencies are trying to face.
This rise was initially supported by the Federal Reserve’s liquidity injection in 2020 as part of its efforts to prevent a recession.
With the liquidity flow drying up, a gap between financial markets, stocks, and cryptocurrencies has emerged. With liquidity becoming scarce, the market is vulnerable to a collapse, especially as many indicators point to an impending recession in the United States.
As global interest rates approach the end of the most significant cycle of interest rate hikes in history by central banks, this situation worsens. When the market relies on the largest liquidity pump, which is rapidly heading towards a recession, and based on the mechanism by which liquidity pumps fuel market increases, liquidity dump operations lead to violent market declines.
I believe there are clear signs of a recession in various parts of Europe and a deterioration of growth in China, and eventually in the United States. Typically, the global economy enters a potential recession. With liquidity injection followed by long-term stable interest rates, and with the Federal Reserve expected to focus on policy easing in 2024, the price of Bitcoin and other cryptocurrencies will likely decline.
Furthermore, the number of hacking incidents increased to 76 in the third quarter of 2023, compared to only 30 in the same quarter of the previous year. Cryptocurrency and Web3 projects suffered a 153% increase in hacking incidents from July to September 2023 compared to the same period in 2022. This makes security-related challenges a strong impediment to the recovery of Bitcoin and other currencies.
The biggest loss in the cryptocurrency market came from the Mixin breach on September 25th, which drained nearly $200 million. The Multichain breach followed as the second worst attack during this quarter, resulting in losses of over $126 million that have not yet been recovered.
Additionally, the Lazarus Group siphoned over $208 million in cryptocurrencies through multiple attacks, including hacks on centralized services like CoinEx, Alphapo, Stake, and Coinspay. It’s worth noting that the Lazarus Group was responsible for 30% of the total stolen cryptocurrencies in the third quarter.
In my opinion, the biggest threat to cryptocurrencies and Bitcoin will primarily be the pressure resulting from liquidity withdrawals, assuming the stock market experiences a typical downturn.
Secondly, an increase in hacking incidents and speculation. In such a scenario, cryptocurrencies may be at the forefront of recession victims, especially with investors closely watching strong bear markets and the absence of recovery incentives.