How Could Bitcoin, Ethereum React To Liquidity Pressures in 2023?

Bitcoin and Ethereum prices erased their gains from the overjoyed 2022’s highs under rising selling pressure in the bear market.

Economic data in November, followed by December signaled recession in the United States as well as in Europe to apparent levels while the Fed’s stance could continue its hawkish path.

Traders in the interest rate market expect rates to peak in March 2023 increasing liquidity in cryptocurrencies and most notably in Bitcoin and Ethereum that could witness a spike in liquidity pressure in 2023’s first quarter as the Fed maintains its hawkish policy.

The mid-forward sentiment in the options market remains bearish. A rebound in crypto prices is a long way off based on the macroeconomic outlook.

A considerable part of investors and traders see that Bitcoin and Ethereum prices could stumble under selling pressure. It is worth remembering that Bitcoin and Ethereum prices nosedived with rising selling pressure in 2022.

The top three factors influencing crypto prices were:
1) the US Federal Reserve’s hawkish policies favouring higher interest rates to curb inflation,
2) the collapse of Terra’s ecosystem of tokens LUNA, and
3) UST and the spreading FTX contagion.

The first half of 2023 will see Bitcoin and Ethereum facing strong liquidity pressure. While the US economy remains strong, there is enough evidence that the US Federal Reserve will maintain a hawkish policy through 2023. In addition, high inflation leaves the European Central Bank little choice but to raise interest rates aggressively.

Experts believe the US Fed’s peak interest rate will remain in place for at least six months and rates are expected to peak in March 2023. Liquidity pressure on two largest crypto currencies by market capitalisation, Bitcoin and Ethereum will therefore remains high.

The market sentiment has not improved from the start of 2022. Institutional and professional investors are concentrating on the options market therefore an analysis of changes helps effectively judge the direction of the crypto market.

The options based crypto sector that includes centralized/decentralized options trading business, structured products, options market data analysis will further develop in 2023 as more professional institutions, market makers, and individual investors join the market. Bitcoin and Ethereum holders might suffer more pain in 2023’s first quarter as the selling pressure on these risk assets surges.