Bitcoin (BTC), in familiar territory under $50,000, begins its first week of 2022.
The December ending price of $47,200 was far below bullish expectations. However, the largest cryptocurrency still has a lot of work ahead of it. There are no signs of a halving cycles peak and the biggest cryptocurrency is not yet in the top 10.
Analysts predict that 2022 will be a very interesting year for Wall Street, with inflation rising and interest rate rises on the horizon.
All is well so far — BTC/USD has not produced any major surprises for weeks.
Cointelegraph looks at what might change or continue the status quo over the next few days.
Stocks could experience 6 months of “up only”.
For an example of U.S. equity market state of play, look no further than S&P 500.
In 2021, the index reached 70 all-time highs, which was a great way to end the year, even though risk assets seemed less appealing.
Bitcoin was one of them. It trailed below the $50,000 mark, with the only notable events being peaks and valleys around thin holiday liquidity.
This being said, the central bank policy is widely expected to be a potent cat among the pigeons over the next few months. Two interest rate increases have been signalled by the Federal Reserve this year. The market’s ability and willingness to absorb these rates is a key indicator of asset performance.
However, for the first part of the year it could well be a continuation or the latest “business as usual” — stocks rising to new heights.
Charles Edwards, the founder of Capriole asset manager, observed in a series tweets this week that “History suggests that the beginning of rate hike regimes actually result stock market strength for six months.”
“10 of 13 regimes (77%) have had positive stock market returns in the six months prior to the 1950s, an average +5.1%. Now is the time for a new regime.
Edwards stated that although such conditions are generally good for Bitcoin, further upheaval would likely cause stocks to take a beating due to rate hikes.
He said, “Without significant higher economic growth (yet-to-be seen), it’s unlikely that any Fed rate hike programs will have a long runway.”
“Bitcoin will fluctuate in this period due to both stock market volatility and sharp Fed course corrections.”
Next week, inflation will again be on the radar. Jan. 12 is the date for the U.S. consumer price Index (CPI) December data.
Inflation chart for the United States. Source: Tradingeconomics.com
$40,000 stays support floor
The Bitcoin spot price action has been very limited in terms of providing any interesting cues recently, but it is still within a defined range.
A fight between bulls or bears has been quite ineffective beyond the rhetoric on social media. Volumes are low, interest from retailers is low and large players maintain their sell levels near each other.
These are the two levels that I consider important for #Bitcoin. # $48,000 is the current rejection. # $48,000, the one that caused our latest correction. It should flip for a bullish test, potentially between $55k and $55k. pic.twitter.com/zISQu2IcDV
— Michael van de Poppe (@CryptoMichNL) January 2, 2022
TechDev, a popular analyst and trader, agreed that $48,000 is “a little brick wall” when responding to Micha1el van den Poppe’s Sunday Cointelegraph levels to watch.
Van de Poppe stated that he was looking at the $40,000 to $42,000 range, with any action beyond that being “accumulation.”
However, Bitcoin has a reputation for upsetting even the most established trends at the worst moments.
Pentoshi, a fellow trader, sees little reason to celebrate levels below $60,000 which last appeared over a month ago.
“I will continue to be logical in a downtrend. I will remain macro bearish until the 58-60k mark. He also stated that he was bullish in local areas.
Pentoshi and others advocated a pivot to Ether, (ETH), based on altcoin strength. This would provide a convenient method to “de-risk”, with Bitcoin underperforming.
This strength is captured by Bitcoin’s dominance in the market, which has now fallen below 40% for first time since May according to TradingView data.
Bitcoin dominance 1-week candle chart. Source: TradingView
On-chain metrics predict “sustainable price trend”
On-chain metrics offer a lot of relief for those who are looking for some silver lining in the otherwise uninspiring price actions.
Bitcoin is a great investment option based on historical trends, and the further the market moves away from the snap correction last month, the more attractive it looks.
Ryan McCoy, Capriole’s director of communications, highlighted the changing tide in investor selling behavior as it aligns with the last stages of past corrections.
The Short Term Holder Expend Profit Output Ratio (SOPR), which is on-chain analytics firm Glassnode, shows the extent of gains and losses from coins recently spent. It focuses specifically on coins that have not moved for at least 155 days.
Current SOPR scores are below 1 which indicates that coins lost at loss are decreasing in number — possibly a form of seller exhaustion.
McCoy explained that “typically, this metric starts at the bottom and then rises, it is a more sustained price trend.”
“The 30-day median is still lower than 1 (implying the average price at which the coins have moved is lower than what they were bought at). However, signs of life such as this after a significant corrective event indicate that we are likely to be in the final stages of the current correction.”
Chart showing the SOPR (30-day moving mean) Bitcoin short-term holder Source: Capriole
Cointelegraph has extensively reported on hodlers’ behavior when it comes to BTC. Long-term investors are steadfast in their belief that they should not sell.
McCoy summarized, “Despite the -38% decline since November,”.
“The Bitcoin price was $47K the last time, and long-term bitcoin holdings were 10% lower. Despite volatility, there has been little distribution to date. That’s bullish.”
Fundamentals are (almost) as good as ever
Network fundamentals, a continuation of the positive outlook, underscore the belief of an additional group of important Bitcoin market participants.
Despite seeing record highs of $69,000, miners are still accumulating their coins and not selling them.
The network hash rate is also at an all-time high, which was last seen in March or April, before the Chinese ban that triggered months of migration.
If the old saying that “price follows hashrate” is true, then miners’ trust in the long-term profitability and viability of Bitcoin can be a key indicator of market direction.
Capriole said that metrics like these are old-guard fundamental outlook materials and are often overlooked by newer, sexier ways of explaining price dynamics and supply and demand. However, they cannot be ignored because of their ability to explain institutional support for securing a protocol that, at this point, effectively underpins all of the crypto economy.”
Chart showing the Bitcoin hashrate. Source: MiningPoolStats
According to MiningPolStats estimates, the current hash rate is over 190 exahashes per minute (EH/s).
Bitcoin network difficulty will increase by approximately 2.4% later in the week.
Bitcoin difficulty chart. Source: Blockchain
This is a reflection of the competitiveness in the current mining landscape. The difficulty should soon tackle 25 trillion again for a first time since the pre–China peak, according to data from Blockchain.
Each increase in difficulty strengthens network security, creating a stronger ecosystem.
Is “extreme fear” sustainable at this point?
The 2022 Bitcoin sentiment was marked by severe cold feet. The Crypto Fear & Greed Index measures “extreme fear”.
Related: Top 5 Cryptocurrencies to Watch This Week: BTC. LUNA. FTM. ATOM. ONE.
Cointelegraph reported that investor emotions are becoming more sensitive to smaller price changes within the current range.
Fear & Greed has risen 8 points since the weekend despite little price action.
The Index was at 29/100 at the time of writing. However, it is still in the “fear zone”.
Crypto Fear & Greed Index. Source: Alternative.me
Ecoinometrics, an on-chain analytics resource, noted that such sentiment has not been sustained for very long.
“Bitcoin is back with extreme fear. It tweeted, “Historically, that means there is little downside at 30 days,” along with a chart comparing the index to BTC/USD.
Chart comparing Crypto Fear and Greed Index to BTC/USD. Source: Ecoinometrics/Twitter
Eileen Wilson –Technology and Energy
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