bitcoin (BTC) starts a new week at fresh 2023 highs, but still divides opinion after a price surge.
In what’s shaping up to be the antidote to last year’s slow hemorrhage to lower prices, January brought the volatility Bitcoin bulls were hoping for – but can they sustain it?
This is the key question for market participants entering the third week of the month.
Opinion remains divided on Bitcoin’s fundamental strength; some outright believe the march to two-month highs is a “sucker rally,” while others hope the good times continue – at least for now.
Beyond market dynamics, there is no shortage of potential catalysts to assert themselves on sentiment.
US economic data will continue to come in, while corporate earnings could bring further volatility to equity markets this week.
Cointelegraph takes a look at five potential BTC price moves as all eyes focus on new support levels and the fate of the Bitcoin bear market.
BTC Price Needs Consolidation, Analysts Agree
Bitcoin has faced growing skepticism after breaking through some key resistance levels over the past week.
As Cointelegraph reported, the consensus remains biased to the long-term bearish sidewith few thinking the current momentum will end up as more than a bear market rally.
With warnings of further macro lows of $12,000 still in effect, analysts are watching for signs of a reversal. So far, however, this has not materialized.
The weekly close is tied to those just before FTX collapsed, with BTC/USD still above $20,000 at the time of writing, having hit new local highs of $21,411 overnight, the data of Cointelegraph Markets Pro and TradingView watch.
Volatility remained in action, with moves in the hundreds of dollars commonplace over hourly timeframes. A flash low below the $21,000 mark was describe by commentator Tedtalksmacro as a “liquidity hunt”.
Analyzing what levels to hold in the event of a larger retracement, on-chain analysis resource Material Indicators has identified the 21-week moving average (MA) at $18,600.
“Another $11 Million Bid Wall Placed to Defend Bitcoin 2017 Top,” he Noted alongside an additional chart of Binance’s order book.
“Holding above this level is symbolic and increases the likelihood of extending the rally, but the IMO holding the 21-week MA is essential for a sustained rally. TradFi is closed on Monday for MLK Day. Volatility continues.
A previous post added that the whaling activity actually contributed to sustaining the trade market.
Pending reversal of FTX losses, Stockmoney Lizards trading account called for “a small (lateral) consolidation” at current levels.
Michaël van de Poppe, founder and CEO of the trading company Eight, said that Bitcoin could indeed consolidate due to changes in the weakness of the US dollar.
The U.S. dollar index was still trading near its lowest levels since early June 2022 on the day, after hitting 107.77.
Focus is on earnings as a catalyst for equities
This week will get off to a fast start in terms of macro data, with producer price inflation data arriving on January 18th.
It will come amid various speeches from Federal Reserve officials, while stocks are likely to be influenced by another phenomenon in the form of corporate earnings reports throughout the week.
As Bank of America strategists noted in a note last week, the S&P 500 has become particularly sensitive to earnings reports, with their impact outpacing mainstream data releases such as the consumer price index.
“We see this as a narrative shift from the Fed market and inflation to earnings: Reactions to earnings have increased, while reactions to inflation data and FOMC meetings have declined,” it said. they wrote, quoted by outlets including CNBC.
Strategists referred to the February 1 Federal Open Market Committee (FOMC) meeting to decide on interest rate hikes.
The rate hike is currently expected to be lower than any since the start of 2022, with sentiment favoring a 0.25% increase, according to CME Group’s FedWatch tool.
“The lower the Fed Funds, the more liquidity in the system,” Ram Ahluwalia, CEO of digital asset investment adviser Lumida Wealth Management, said. wrote Last week.
An attached chart showed what Ahluwalia suggested was a beneficial relationship between lower fed funds rates and Bitcoin liquidity.
He went on to refer to a mainstream media appearance by veteran economist Larry Summers on January 13, in which the latter made positive noises about reducing inflation.
“Larry made a statement saying the Fed’s fight against inflation is ‘much, much closer to being over.’ the Fed,” he said.
“BTC benefits from the QE hypothesis: one of the big macro offices listened and went long in bitcoin.”
GBTC’s winning streak continues
On the topic of recovering institutional interest, another chart plotting its entire FTX losses is Bitcoin’s largest institutional investment vehicle, the Grayscale Bitcoin Trust (GBTC).
Data from coin glass shows that as of January 13, the last date for which data is available, GBTC shares were trading at a discount to net asset value of 36.26%.
This discount, formerly positive and known as the “GBTC premium”, has increased since late December 2022 and is now higher than at any time since the FTX collapse.
Its largest reading came just before that, when it hit 48.62%, with GBTC suffering as part of parent company Digital Currency Group’s own FTX issues.
This controversy keep on ragingoften publicly, but GBTC delivers its most encouraging results in months.
Behind the scenes, Grayscale continues to fight US regulators over their refusal to allow it to convert GBTC into an exchange-traded fund (ETF) based on the spot price of Bitcoin.
In a vast Twitter to update on January 13, Craig Salm, Chief Legal Officer of Grayscale, referenced the company’s “commitment” to winning its lawsuit and bringing the first Bitcoin ETF to market in the United States.
“To reiterate, converting GBTC to a spot Bitcoin ETF is the best long-term way for him to track the value of his BTC,” he summarized.
“Our case is moving quickly, we have strong, common sense and compelling legal arguments and we are optimistic that the Court should rule in our favor.”
Difficulty hits a new all-time high
If Bitcoin’s price rally wasn’t enough to excite the bulls, its network fundamentals tell an equally encouraging story.
Roughly in line with weekly close, network mining difficulty increased by more than 10%, marking its largest increase since October 2022.
The move has obvious implications for Bitcoin miners and suggests the ecosystem is already benefiting from higher prices.
As Cointelegraph reported, the miners had already slowed down of their BTC reserve sales in recent weeks. At the same time, the increase in difficulty reflects the competition for block grants accruing to the sector.
Over the past week, however, miner balances have shrunk in response to Bitcoin’s rapidly rising price. They stood at 1,823,097 BTC as of January 16, data from the on-chain analytics firm glass knot shows, marking one-month lows.
Despite this, miner difficulty has now wiped out his FTX reactions and set a new all-time high in the process.
“Bitcoin is retesting the estimated average cost of production price for miners,” Glassnode added. Noted last week before most of the winnings arrived.
He added that “breaking above this level provides much-needed relief to miners’ incomes.”
An accompanying chart showed his proprietary “difficulty regression model”, which he describe as “an estimated global cost of production for Bitcoin”.
Sentiment leaves ‘fear’ as whales buy big
It’s no secret that the average Bitcoin holder is experiencing some much-needed relief this month, but is this a case of unchecked euphoria?
According to the secular criterion, the Crypto Fear and Greed Indexit could be “too much, too soon” regarding mood swings regarding Bitcoin price strength.
On January 15, the Index reached its highest level since April 2022. Although not yet “greedy”, this decision marks a significant change from a few weeks ago.
The crypto market spent much of 2022 in its lowest slice of “extreme fear”.
Now it scores above 50/100, dropping slightly in the new week to stay in “neutral” territory.
For research firm Santiment, which specializes in assessing the atmosphere around crypto markets, there is one overriding factor influencing Bitcoin’s new strength.
The answer is wrote in a Twitter post this weekend, lies firmly in whale activity.
In the ten days leading up to January 15, both large and small whales strengthened their positions, setting off a chain reaction of supply and demand. In total, over this period, they bought 209,700 BTC.
Santiment called the data “a definitive explanation for why crypto prices have rebounded.”
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.