CPI data is comming - 5 things for BTC on this week

Key points: 

• Traders expect that we’ll continue rallying coming week, but probably have a drop due to Gemini or correction on Monday first.
• The CPI is due to hit the market on Jan. 12 and traders and analysts are aware that the signals it provides could lead to a change in stance.
• DCG will continue to “explode in slow motion.” If they somehow collapse, it’s gonna get ugly. That could be our last leg down to 85% drawdown from Bitcoin ATH’s
• The heavy selling pressure from Bitcoin miners that have bombarded the market for the past 4 months has now finally abated. 
• According to the Crypto Fear & Greed Index, sentiment in the crypto market is the most uncertain about the near-term outlook.

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Bitcoin starts a week on solid ground, and BTC price action nears monthly highs - can it last?

BTC/USD is currently climbing to its lowest level since mid-December, with a weekly close on the positive side amid the new year’s push for bulls.

The move comes ahead of the cryptocurrency market’s featured macroeconomic week when the U.S. will release its consumer price index (CPI) for December 2022.

Federal Reserve Chairman Jerome Powell is also due to speak on the economy, with inflation in the spotlight.

In the cryptocurrency space, FTX contagion continues as Digital Currency Group (DCG) disagrees with institutional clients over how to handle the solvency of subsidiary Genesis Trading.

Meanwhile, behind the scenes, Bitcoin is still showing signs of recovery from the FTX turmoil, in which miners are taking a break.

Bitcoin Price Exceeds $17,000

Bitcoin managed to surge through the weekly close on Jan. 9, reaching levels not seen on the charts since Dec. 16.

TradingView data shows a local high of $17,250 on Bitstamp.

BTC/USD 1D chart. Source - TradingView

Despite only adding a few hundred dollars, the BTC/USD movement has not gone unnoticed considering the extremely compressed trading range that existed in the previous weeks.

Still, traders are reluctant to change their long-held conservative views in the face of the likely fallout.

“Going forward and reaching my target of $17,300-17,500,” Crypto Tony told Twitter followers in today’s update:

“I have taken some profit here on my scalp long, and remain in my short as long as we are below 17,500 on 4 hour closure.”

Michaël van de Poppe, founder, and chief executive of trading firm Eight, also left the door open for a modest follow-through but warned of obstacles early this week.

“I still see cases like this in Bitcoin,” he confirmed alongside an explanatory chart:

“I think we’ll continue rallying coming week, but probably have a drop due to Gemini or correction on Monday first.”

BTC/USD annotated chart. Source - Michaël van de Poppe [Twitter]

Meanwhile, Venturefounder, a contributing analyst at on-chain analytics platform CryptoQuant, reminded investors to narrow their scope.

“Bitcoin stuck between $16,000 and $18.5,000 for 2 months,” he admitted:

“Watch this range very very carefully, a break from either direction can bring 20% volatility, could happen soon. A definitive break of $16k could see $13k, make $18.5k support we can see $22.5k.”

BTC/USD annotated chart. Source - Venturefounder [Twitter]

CPI countdown returns as risk asset traders keep an eye on volatility

With December's consumer price index (CPI) data on the horizon, all eyes, including the Fed, will be on this week's inflation figures.

The CPI, due to hit the market on Jan. 12, is an essential part of Fed policy, and traders and analysts are aware that the signals it provides could lead to a change in stance.

The recent drop in CPI indicates that the Fed's continued interest rate hikes have a positive impact on inflation.

If this persists, or even falls more than expected, hopes will grow that the Fed will begin to scale back rate hikes more quickly or even stop raising rates altogether.

That, in turn, provides a profit-making window for risk assets, including cryptocurrencies, as the Federal Reserve's loose policy fuels risk appetite.

"Expect huge volatility. Huge cash position and light position size for me," Ted Zhang, a trader and research analyst at Revere Asset Management, told his Twitter followers, describing the CPI event as a "big week."

Others pointed to the unusual timing of the CPI schedule, which comes two days after Federal Reserve Chairman Jerome Powell spoke on the economy.

"Unfortunately or fortunately, the speech is on Tuesday and the cpi is on Thursday, so any hawkishness after Thursday's cpi data will be removed!" one responded, adding that the market's reaction to Powell's speech Does mean "noise".

According to the CME Group's FedWatch tool, the chance of a 25 basis point hike this month is now at 75%, while the possibility of a 50 basis point hike is at 25%.

Fed target rate probabilities chart. Source - CME Group [Twitter]

In the longer term, skeptics such as the "big short" investor Michael Burry believe that inflation will return, forcing the Fed to raise interest rates again.

“CPI inflation is unlikely to drop to 2%, let alone turn negative,” gold fan Peter Schiff wrote last week in reply to Barry:

“But I agree with you that the Fed will return to QE and the official inflation rate will hit a new high. The unofficial actual rate will hit a new all-time record high.”

DCG openly faces the challenge 

Institutional investment giant Digital Currency Group (DCG) held a barbecue this month as the fallout from the FTX incident continued to simmer.

In an increasingly complex story, the exposure of FTX increased pressure on certain DCG affiliates and even raised questions about the future of Bitcoin’s largest institutional investment vehicle.

Grayscale Bitcoin Trust (GBTC) currently manages over $10 billion in BTC assets. According to Coinglass, its shares trade at an implied discount of 44% to the spot price of Bitcoin.

As reported, the Gemini exchange froze some of its assets with DCG firm Genesis Trading after FTX stopped withdrawals. Its co-founder, Cameron Winklevoss, has publicly sought answers from DCG CEO Barry Silbert.

On January 8, he wrote to Silbert in an open letter, setting a deadline for resolving the issue, but as time went on, Silbert himself denied this.

"DCG submitted a proposal to Genesis and your advisors on Dec. 29 and received no response," he said in a Jan. 2 Twitter reply to Winklevoss.

Should events take an unpredictable turn, the impact on the bitcoin market could become more severe, and DCG's notoriety as an investment firm makes the crash particularly notable.

Describing recent events, Checkmate, a senior on-chain analyst at Glassnode, said DCG will continue to “explode in slow motion.”

"And Bitcoin price is basically a stablecoin," he added.

“In 2023, it’s all about DCG at this point,” predicts Justin Herberger, author of the Invest and Prosper newsletter:

“If they somehow collapse, it’s gonna get ugly. That could be our last leg down to 85% draw down from Bitcoin ATH’s.”

GBTC premium vs. asset holdings vs. BTC/USD chart. Source - Coinglass

Miners break their sales record

Bitcoin miners have been on their radar for most of 2022, but the BTC price drop following the FTX implosion has worsened an already fragile situation.

Miners began stripping their own stored bitcoins to remain financially viable, and on-chain indicators soon warned miners that a “capitulation” was already underway.

However, neither the magnitude nor the duration of the sell-off was severe and the situation has stabilized recently.

William Clemente, the founder of cryptocurrency research firm Reflexivity, concluded this weekend with data from on-chain analytics firm Glassnode: “The heavy selling pressure from Bitcoin miners that have bombarded the market for the past 4 months has now finally abated”.

The data shows a net 30-day change in the positions of Bitcoin miners, which actually started to increase compared to the previous month.

Bitcoin miner net position change chart. Source - William Clemente [Twitter]

Separate Glassnode data support this observation, with miners’ BTC reserves reaching their highest level in a month on Jan. 8.

Bitcoin miner balance chart. Source - Glassnode [Twitter]

Looking at Bitcoin’s hash rate — the estimated mining processing power — Jan Wuestenfeld, an analyst at crypto research and advisory firm Quantum Economics, is equally optimistic about the status quo.

He pointed out: “Despite the intense pressure on miners, it is crazy that the hash rate has only slightly corrected in the last two months of 2022 and is now even rising below the 30-day moving average.”

Bitcoin’s network difficulty was adjusted down by about 3.6% last week, resulting in less competition among active miners. However, according to the latest forecast from BTC.com, the next adjustment will wipe out these losses, increasing the difficulty by 9% to a new all-time high.

Bitcoin network fundamentals overview. Source - BTC.com

Extreme Fear matches the 18-Month trading volume low

According to the Crypto Fear & Greed Index, sentiment in the crypto market is the most uncertain about the near-term outlook.

Over the weekend, the index pooled sentiment from a basket of weighted triggers, falling back to the top of its most bearish range, "extreme fear."

"Extreme fear" is a first for 2023 but familiar to long-term market players who have seen sentiment linger in the index's lowest territory for the longest time in the past year.

Crypto Fear & Greed Index. Source - Alternative.me

At the same time, interaction with cryptocurrencies appears to be conspicuously missing at current price levels.

Data from research firm Santiment recorded the cryptocurrency's lowest transaction volume since mid-2020.

“Altcoin volumes were particularly low,” reads a note on the accompanying chart.

Bitcoin spent output value bands annotated chart. Source - CryptoBitcoinChris [Twitter]

However, separate data from CryptoQuant, reported by popular social media commentator CryptoBitcoinChris, noted that whale sales have also declined since December, which could lead the trend and “have a positive impact on market sentiment.”