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During 2023, several topics with a macro perspective will be relevant and prominent. We will analyze issues such as maximum and minimum inflation, wave 5 of all markets and the parallels with the dotcom crisis. We will take all these factors into account for our analysis of the most relevant topics for 2023.
These three themes could change quickly if the macro outlook improves, although skepticism now reigns in the markets and announcements from the US Federal Reserve should be awaited.
Let’s analyze the three main themes of this 2023 in the following order:
- From maximum to minimum inflation.
- Wave 5 of all markets.
- Dotcom parallels.
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One of the most relevant topics for 2023: From minimum to maximum inflation
During 2022, the United States Federal Reserve struggled against a CPI that in July 2022 reached 9.1%. This figure now seems to hold as the highest in this inflationary cycle.
This begins to raise questions about what the bottom line for inflation will actually be through 2023, considering that the Fed’s target seems unlikely. We can make analogies in this case with a stagflation of the 70s and we will see that the fall in inflation is imminent, although not to the expected levels.
This presents another risk, a V could form after a fall and a very rapid rebound in inflation if the Fed were to ease policy too quickly.
This could be caused by factors such as:
- Rebound in oil prices after the opening of China.
- Oil prices above $100, driving the spike in inflation.
This scenario similar to the OPEC oil embargo in the 1970s put Arthur Burns’ Fed in a bind by quadrupling oil prices, when they thought they had managed to control inflation.
One of the reasons why we see disinflation is because of the deflation of goods. However, goods and services inflation will remain strong as long as it is closely related to wages and service prices.
An increase in oil prices would have the following consequences:
- It would reverse the deflation we currently see.
- The prices of services would continue to increase.
- It would increase the risk of a recession, bringing us even closer to the 2008 global financial crisis and the dotcom crisis.
In the following graph, we will see how we touch the recession probability of the start of the COVID-19 pandemic and quickly approach the 2008 crisis. This peak is only surpassed by the recession probability of the dotcom crisis in 2001.
Relevant topics for 2023: Wave 5 of all markets
The rigidity of the Fed and the inflationary trajectory augur us that a final liquidation of the fifth wave of all the markets is approaching. Markets seem not yet ready for a break from last year’s downward levels.
One of the most relevant issues for 2023 is the movement of the markets, which during 2022 suffered a considerable drop. Below we will show 5 of the most related assets that appear to be about to start their wave 5 impulsive extensions in both directions, up or down.
1. NASDAQ – Bearish
The NASDAQ continues to fail to break above the trend line that has held throughout the December 2021 drop.
We should look at the $12,000 level on top, breaking it is essential to nullify any short-term bearish pressure. Looking down, the odds of hitting 10,000 are high. The risk of touching 7,000, minimum levels during the COVID-19 pandemic.
We will change our thesis if we see a break above 13,000. However, we take Fibonacci as a reference, which sits at 78.6%, which tells us that the bear market could end at 8,800.
2. US 10-Year Yield – Bullish
In this case, the 10-year returns have held their trend line. This supports the rebound of 0.5% in 2020 and the maximum of 4.3% in October 2022.
The setback in October drives the increase in asset risk. A rebound in 10-year yields and a flattening of the 2s10s curve would be bearish for risk assets.
This would further boost the USD, which would imply that the market catches up with the forecasts for this year by the FED with interest rates close to 5.5%.
4. US Dollar (DXY) – Bullish
The dollar index has retraced since December and the sharp retracement has the characteristics of an Elliot wave, alternating waves 2 and 4. We can see wave 2, in 2020, and wave 4 much shorter but pronounced.
This tells us that we could expect a rally of approximately 16% and would take us to the 120 on the DXY index. The magnitude of wave 5 would be similar to the magnitude of the first wave on the chart.
5. Ethereum (ETH) – Bearish
ETH has starred in a bearish wave in recent months, especially in wave 4. Now the outlook indicates that the trend will continue in wave 5.
We should look at the 1600 levels on top, this level would negate that remaining bearish pressure. And a close above 2000 would lead Ethereum to change the trend from bearish to bullish, nullifying our thesis.
Instead, the levels to the downside are 1000 and followed by 800, key levels to watch out for. The recommendation is to sell short options at 1600 levels and call options around 2000 in the long term.
5. BTC – Wave 5 Bullish
Although BTC trades in parallel with ETH at times, the falling wedge of its wave 4 implies much more pronounced downward pressure than ETH.
Given the weakening of the dollar during the last month, BTC increased its price, currently trading at $23,128. However, we can also establish a relationship between ARK Innovation ETF and Bitcoin as follows:
The blue line indicates the development of ARK and the orange of BTC. We can see in the graph that after the fall of the technology bubble in 2022, the star of the pandemic was the first to fall. The same has happened with Bitcoin.
This has left ARK below in its fifth bearish wave which has touched March 2020 lows.
Parallels to the dotcom crisis
The outbreak of the dot-com crisis brought with it a regulatory framework and laid the foundations for more controlled development. Back then, giants of the day, Enron and WorldCom, fell and still rank among the 10 biggest bankruptcies in US history.
In bullish times, fraud often goes undetected. This is because investors are happy to pay high valuations if money is cheap. When the bullfight season arrives and this panorama changes, the adulterated balance sheets come to light.
Back then, the lack of regulation allowed companies to operate outside the law (which obviously had no idea how to properly regulate tech companies). The reforms after the fall of Enron and Worldcom, smoothed the way and laid solid foundations.
The analogue of this crisis is DeFi, which perfectly follows the example of the dotcom era. Once the regulatory parameters are set correctly, when comparing the dotcom market to DeFi, the road ahead is long.
We are at a point that will allow for exponential development if investors and clients begin to operate fairly and equitably in the market.
Summarizing the most relevant topics for 2023
- The inflation spike has passed, but we could see a V-shaped rebound. This means that to achieve the 2% inflation target, the Fed will have to raise its interest rates 4-5 times during 2023 to avoid the rebound. .
- Fraud cases continue to appear in the DeFi sector, just as they did in the dot-com era. This scenario could continue throughout 2023.
- The necessary regulations could be developed during this year after the parallels with the 2001 crisis. If the norms for the sector are established, the growth would be important.
The information in this content comes to us courtesy of CoinMarketCap.
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