Crypto market on 'fifth wave lower'? 5 Things to Know About Bitcoin This Week
Crypto market on 'fifth wave lower'? 5 Things to Know About Bitcoin This Week
Bitcoin started the pre-Christmas week on a pessimistic note, with a narrow trading range that made it almost impossible for bitcoin bulls to cheer.
The weekly close was slightly above $16,700, meaning that in the absence of overall market direction, BTC/USD remained free of major fluctuations.
Trading behavior in the pair was erratic around the release of the latest US macroeconomic data and has since returned to the all-too-familiar status quo. What can change this situation?
This was the question on every analyst's lips as the market stumbled in the run-up to Christmas with little to offer.
The reality for the average bitcoin holder is tough - bitcoin is trading at a lower price than it did two or even five years ago. It's full of "FUD" due to the impact of FTX and concerns about Coin Security.
At the same time, there are signs that miners are recovering, while on-chain indicators suggest that the time is ripe for a classic macro price bottom.
Will bitcoin disappoint further in the new year? Or will the bulls get the Santa Claus rally they so desperately need?Cointelegraph breaks down the factors behind the upcoming BTC price action.
Bitcoin Spot Price: "Surrender" or "Slow Collapse"?
Bitcoin closed last week at just under $16,750 and saw no new volatility on Dec. 18.
Even the volatility that accompanied the US inflation data and Fed comments was short-lived, and since then BTC/USD has returned to an arguably frustrating status quo.
Data from Cointelegraph Markets Pro and TradingView bear this out - bitcoin has barely seen any significant price movement since the FTX scandal broke in early November.
BTC/USD 1-week candlestick (Bitstamp) Source: TradingView
The question, according to market commentators, is under what circumstances do things reverse differently, up or down.
Looking at the Fibonacci retracement level on the weekly chart, analytical resource Stockmoney Lizards ventured that BTC/USD is at a "critical support level".
If the area around $16,800 starts to disappear, then the next area will be around $12,500.
Another chart released over the weekend compares bitcoin's "final sprint" during past bear markets. This reinforces the idea that BTC/USD may have almost "replicated" the previous macro bottom structure.
BTC/USD chart comparison Source: Stockmoney Lizards/Twitter
Others believe that the worst of the cycle is yet to come. These include popular trader and analyst Crypto Tony, who is among those who think the low could be around $10,000.
"So in 2023, I expect BTC to start forming a bottom pattern at the lower end of the range we are currently in, while forming volume support around 11,000-9,000," he reiterated in a Twitter post late last week.
"It remains to be seen whether we surrender, or whether we have a slow collapse."
He added that the "accumulation phase" after the mass capitulation will only come further in 2023 as Bitcoin prepares for its next block subsidy halving event.
Analysts predict sharp dive in risk assets as new data to be released in US
After last week's inflation data and the drama at the Fed, it's safe to say that the pressure on bitcoin investors will ease in the week ahead.
That said, U.S. gross domestic product (GDP) growth is coming in the third quarter, and is estimated to turn positive after a 0.9% pullback in the second quarter.
This is significant because, judging by the second quarter data, the U.S. is technically in recession, despite the best efforts of politicians to deny that the financial situation is as bad as the data implies.
However, as market investor Ajay Bagga points out, an overly strong GDP reversal will allow the Fed to continue to aggressively raise rates to curb inflation - which is unwelcome for all risk assets, including cryptocurrencies.
In last week's update, he wrote: "The Atlanta Fed GDPNow model's estimate of U.S. real GDP growth (seasonally adjusted annual rate) for the fourth quarter of 2022 was 3.2% on Dec. 9, down from 3.4% on Dec. 6."
In addition to GDP, the Personal Consumption Expenditure Price Index (PCE) will also be released, an indicator that the Federal Reserve looks at closely when considering policy changes.
Trading firm QCP Capital similarly cautioned about the impact of the PCE data in its latest market update on Dec. 17.
QCP has issued a warning to risky asset markets that all assets, including cryptocurrencies, will fall in the near future.
"As we've been writing, the Q4 rally has built a perfect fourth wave, with all markets - S&P/NASDAQ, 2-year/10-year, USD and BTC/ETH - poised for a final fifth wave lower," it said .
Nasdaq 100 Index Futures Annotated Chart Source: QCP Capital
This view is shared by Crypto Tony, who predicts what he calls an "impulse low" before a rally in the stock index.
S&P 500 Annotated Chart Source: Crypto Tony/Twitter
Cryptocurrency is being closely watched as it battles what CEO Changpeng Zhao repeatedly calls "FUD".
In recent weeks, the world's most traded cryptocurrency exchange has encountered strong opposition from media and users alike, as its efforts to prove its reserves have failed to convince.
According to Cointelegraph, one of the latest events was the removal by Coin's auditors of additional findings regarding the exchange's financial commitments.
A Reuters report was publicly rejected by Cryptocurrency and also sparked a series of further concerns, including a blog post claiming suspicious activity between Cryptocurrency and Cryptocurrency USA.
"These findings fit perfectly with previous reports from Forbes and Reuters that Coin America is a clever trick used to fool regulators and customers," an entity calling itself Dirty Bubble Media concluded in the post.
Meanwhile, Zhao Changpeng continued to give no time for accusations of any kind, reiterating his "FUD" views on Dec. 17. He then retweeted comments from Ryan Selkis, founder of analytics platform Messari, in which he said there was a "xenophobic" element to the criticism of Coinan.
In two tweets, Selkis wrote: "A large part of Coin's FUD is just barely disguised xenophobia."
Nonetheless, as Cointelegraph pointed out last week, Coinan remains one of the biggest potential triggers for BTC's price.
Increased competition for miners
After the biggest drop in nearly 18 months, Bitcoin's network difficulty will start rising again this week.
BTC.com estimates that the difficulty adjustment will increase by about 3.8% over the next two weeks.
Bitcoin network fundamentals overview (screenshot) Source: BTC.com
This will have an impact on miners, who have experienced considerable turmoil in the weeks since FTX caused BTC/USD to fall by as much as 25%.
As profits are squeezed, fears are beginning to grow that another major capitulation event is in store for miners, who will withdraw from activity on a large scale.
However, as Cointelegraph recently reported, not everyone agrees - the latest reading of the data concludes that most of the adaptation has already taken place.
This theory remains a valid observation due to the renewed rise in difficulty, as the rise in difficulty means more competition among miners, not retreat.
Data from Glassnode, an on-chain analytics firm, also shows that the 30-day reduction in miners' BTC holdings is pulling back as the sell-off cools.
Chart of changes in 30-day net position of bitcoin miners Source:Glassnode
Meanwhile, in analyzing miners' overall share of the BTC supply, journalist Colin Wu argues that their positions don't necessarily matter.
"It is estimated that bitcoin miners currently hold a maximum of 820,000 bitcoins and a minimum of 120,000 bitcoins, representing only 1% to 4% of bitcoin in circulation, even though the impact has been diminished by listed miners selling production of 350% in June of this year," read part of a commentary on Twitter over the weekend.
Chart of estimated BTC holdings of bitcoin miners Source: Colin Wu/Twitter
Market sentiment expected to fall to 2022 lows
It's no secret that timidity is in the air when it comes to cryptocurrency sentiment this quarter.
A palpable sense of doom hangs over social media thanks to FTX and now Cryptocurrency, and the price action of crypto assets has yet to paint a different picture.
That said, the Crypto Fear and Greed Index is performing significantly better than expected and remains above the lowest "extreme fear" rating.
The reading was at the 29/100 level, and one could even say that the index is somewhat disconnected from market sentiment.
However, Crypto Tony believes that this will be short-lived and that the index will return to this year's low of 6/100 in 2023.
"When we are in the extreme fear zone, it is seen as a good buy zone. If we are in the extreme greed zone, it is a sell zone. Based on human psychology," explained part of the commentary.
"Back in June, we reached 6!!! I expect we will reach that level again next year."
The Fear and Greed Index exited "extreme fear" at the end of November and has not yet returned, reaching a high of 31 on Dec. 15, its best performance since Nov. 8.
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