January 2023 FOMO rally of both stocks and crypto doesn’t find follow-up (yet)
Last Updated on 6 November 2023 by CryptoTips.eu
Back in January, the number of bullish media titles were too numerous to cover. Both stocks and crypto seemed to be making a big comeback and Bitcoin was up about 40% (some say 50%) in the first six weeks of the year. After that, the market came to a standstill and a pause was initiated. Stock markets corrected but Bitcoin held up.
Some crypto coins that targeted artificial intelligence did very well for a few weeks, but after a while that trade also became very calm. So, what exactly is going on?
The usual end-of-month table of returns for a few assets.
— Mohamed A. El-Erian (@elerianm) February 28, 2023
While February was a down month for US #stocks, #bonds and #gold, the giveback of January's strong returns did not extend far and wide.
International stocks and #bitcoin added to their earlier gains.#Oil fell further. pic.twitter.com/aAt7iGbJlu
The problem, as always, is inflation. Thanks to the interest rate hikes, it is falling in most major economies where it matters, but consumer price inflation is still very high at around 6% (Europe) and 8.5% (USA). Normally, higher interest rates throughout the western world should cause unemployment to rise, prices to fall and inflation to drop to 2%, but that is not happening anytime soon.
Lower interest rates
Investors may therefore have reacted a little too quickly in January. Some analysts now think the stock market rally at the start of the year, which relied on future rate cuts by the Federal Reserve, the European Central Bank and the Bank of England, was misguided. The surprising resilience of economies, particularly in Europe, is tipping inflationary risks upwards, raising the likelihood of higher policy rates for a longer period of time.
That would be bad news for stocks and crypto in the shorter term. It is therefore remarkable that many crypto analysts, who were still very bullish about the short term in January and February, are now focusing on the halving of 2024, an event that is still a year away.
Meanwhile, Bitcoin ended the month of February with a difference between the beginning and end of the month of 0.03%. In stock market terms this is called ‘unchanged’. There has been no Bitcoin volatility for several weeks. We’re just as eager as you to see how March will play out.
