We're Seeing a Drop in Bitcoin. Here's Why This Week is Going to be a Big One.

After a two-year low in late 2022, bitcoin prices have surged to start 2023.

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Other cryptocurrencies fell Monday, including BitcoinBTCUSD -0.34%. The bullish momentum that has characterized crypto prices for much of the year is now being tested by the catalysts of another week that could throw a wrench in the plans of bulls who have seen big gains in the year.

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As of the end of the last day, Bitcoin's price has dropped 2% to $22,800. So far in 2023, bitcoin has gained almost 40% - hitting its highest price in six months above $24,000 - amid investor optimism and improved risk sentiment following a brutal "crypto winter." 

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A third of Bitcoin's late-2021 high remains to be reached, though it is now firmly above the bear market's lows of late last year, around $15,500.

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There is a strong correlation between cryptocurrency prices and the Dow Jones Industrial Average 

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A complex macro backdrop of inflationary pressures, rising interest rates, and looming recession risks has investors reacting negatively to the Dow Jones Industrial Average and S&P 500. Over the past week, cryptos have weathered a wave of economic data and the latest Federal Reserve decision, with those two events likely to drive sentiment over the coming days as expectations shift over the future of rate hikes.

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In spite of the importance of recent events and economic data, Bitcoin has maintained a price around $23,000, but Yuya Hasegawa, an analyst at Bitbank, says the market may have exhausted reasons to buy the coin and could be subjected to profit-taking sell orders.

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The momentum behind a rise in Bitcoin prices may be waning after such a big rally to start the year. The price of bitcoin has fluctuated around $23,000 since it increased from $17,000 a few weeks ago. After one of the best winning streaks for Bitcoin in years, traders may try to lock in gains, which could test the resolve of bulls in the days ahead, even though prices will likely drop in the days ahead.

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This may not be the case, however, according to data.

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The recent run-up in prices has not yet prompted long-term holders to sell. According to Rachel Lin, CEO of crypto derivatives platform Synfutures, the long-short ratio and lending rates remain positive.

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Cryptocurrencies such as altcoins are showing signs of jubilation as well, which might signal more bullishness as retail investors return to the crypto market.

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As the [Bitcoin Dominance Index] fell for the first time in several weeks, altcoins outperformed Bitcoin last week. Lin said that it indicates that retail enthusiasm may be returning to altcoins as Bitcoin's initial rally catches up.

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Additionally, the second-largest cryptocurrency, EtherETHUSD +0.30%, fell 2% to $1,630. In addition to Cardano, PolygonMATICUSD +0.33% slipped 4% and other smaller cryptos were also down. There was also weakness among memecoins, such as DogecoinDOGEUSD +0.03% down 4% and Shiba Inu SHIBUSD +1.83% down 5%.