Long awaited recovery - 5 things for BTC this week

Key points:

• The consensus is still heavily bearish over the long term, few believe that current momentum will have a different outcome than a bear market rally.
• The anticipated increase in the federal funds rate is currently expected to be lower than any since early 2022. This sentiment is reflected in the CME FedWatch Tool, which currently predicts a rate increase of 0.25%.
• Coinglass's data indicates that as of January 13th, GBTC shares were trading at a discount to the net asset value of 36.26%.
• Bitcoin is currently retesting the estimated average cost of production price for Miners, Glassnode also reported last week that the majority of the gains had occurred before this.
• Over the course of ten days from January 5th to the 15th, large and small whales increased their positions, which led to a supply and demand chain reaction. Over the course of that time, they bought 209,700 BTC.

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Bitcoin begins the week at new highs but still has a divided opinion after a blistering price increase.

In the wake of last year's sluggish price decline, January has delivered the volatility Bitcoin enthusiasts were hoping for, but can they maintain it?

This is the primary concern for market participants during the third week of the month.

Some believe that Bitcoin's fundamental strength is questionable, others believe that the rally is a "sucker's rally," while others hope that the good times will continue.

Other than market forces, numerous potential catalysts could influence sentiment.

Economic data from the U.S. will continue to be released, while corporate earnings could cause volatility in the stock market this week.

Btcman.io examines five potential price drivers for BTC that are dependent on new support levels and the future of the BTC bear market.

The price of Bitcoin is expected to consolidate over the next few days, according to analysts

Bitcoin has been subject to increasing skepticism after passing several significant resistance levels over the past week.

The consensus is still heavily bearish over the long term, few believe that current momentum will have a different outcome than a bear market rally.

With the prospect of new lows of $12,000 still present, analysts are interested in the appearance of a reversal. However, this has not occurred yet.

The weekly low was also similar to those that preceded the FTX failure, BTC/USD still had a weekly high of $20,000 at the time of writing, and the highest value was recorded overnight at $21,411, according to data from TradingView.

Volatility was present, with moves of hundreds of dollars common on hourly charts. A brief dip below $21,000 was referred to as a “liquidity hunt” by commentator Tedtalksmacro.

Analyzing levels to maintain in the event of a broader decline, on-chain analytics resource, Material Indicators identified the 21-week MA at $18,600.

Another $11 million bid wall was placed to defend the Bitcoin 2017 Top, this was accompanied by a new chart of the Binance order book.

“Holding above that level is symbolic and increases the probability of extending the rally, but IMO holding the 21-Week MA is critical for a sustained rally. TradFi is closed Monday for MLK Day. Volatility continues.”

BTC/USD 1D chart with 21W MA. Source - TradingView

A previous post stated that whale activity was actually assisting the market on exchanges.

Looking to reverse the losses of FTX, Stockmoney Lizards called for a "little (sideways) consolidation" at current levels.

Michaël van de Poppe, the founder, and CEO of trading firm Eight believes that Bitcoin may consolidate due to the decline in the U.S. dollar's strength.

The U.S. Dollar Index still had not recovered all of its losses, as of the time of writing, it was trading near its lowest levels since early June of 2022.

U.S. Dollar Index 1D chart. Source - TradingView

The focus shifts to earnings as the catalyst for the stock

This week will begin with a brisk pace of macroeconomic data, on Jan. 18, producer price inflation will be reported.

This will occur alongside various speeches from Federal Reserve officials, while stocks will likely be affected by another phenomenon: corporate earnings reporting throughout the week.

As noted by Bank of America analysts last week, the S&P 500 has become increasingly dependent on earnings reports, these effects have surpassed traditional data releases such as the Consumer Price Index.

We consider this to be a narrative shift in the market: instead of the Fed and inflation, the narrative is now centered around earnings: reactions to earnings have increased while responses to inflation data and FOMC meetings have decreased.

They referenced the FOMC's meeting on February 1st, during which the committee decided to raise interest rates.

The anticipated increase in the federal funds rate is currently expected to be lower than any since early 2022. This sentiment is reflected in the CME FedWatch Tool, which currently predicts a rate increase of 0.25%.

Fed target rate probabilities chart. Source - CME Group

“The lower the Fed Funds, the more liquidity there is in the system,” noted Ram Ahluwalia, the CEO of Lumida Walth Management, the digital investment advisor. 

Ahluwalia's chart demonstrated that lower Fed funds rates had a positive effect on Bitcoin liquidity.

He then referenced a mainstream media appearance by economist Larry Summers on January 13th, in which Summers expressed optimism about inflation decreasing.

"Larry said that the Fed's effort to combat inflation is "much, much closer to being done." This is considered a "positive surprise" to risk assets and supports the Fed's pivot camp.

“BTC benefits from QE Hypothesis: One of the big macro desks listened and went long bitcoin.”

BTC vs. Fed funds rate chart. Source - Ram Ahluwalia [Twitter]

The winning streak of the GBTC continues

Another chart that recreates the entirety of its losses is the largest institutional investment vehicle for Bitcoin, the Grayscale Bitcoin Trust (GBTC).

Coinglass's data indicates that as of January 13th, the most recent date for which data is available, GBTC shares were trading at a discount to the net asset value of 36.26%.

This discount, formerly considered positive and known as the “GBTC premium,” has increased in value since the end of December 2022 and is now higher than at any other point during the FTX debacle.

Its highest-ever reading occurred just before that when it reached 48.62%, this was caused by the fact that Digital Currency Group's own FTX suffered as a result of the company's troubles.

That dispute continues to exist, but GBTC's most recent results are the most encouraging they've been in months.

Even though the company is no longer publicly traded, Grayscale continues to battle U.S. regulators over their refusal to allow it to convert GBTC into an ETF based on the Bitcoin spot price.

Craig Salm, Grayscale's chief legal officer, tweeted on Jan. 13 that the company's "commitment" is to win the case and bring the first Bitcoin ETF to the U.S.

To reiterate, converting GBTC to a spot Bitcoin ETF is the most effective way for it to reflect the value of its BTC over time.

“Our case is moving forward swiftly, we have strong, common sense and compelling legal arguments and we’re optimistic that the Court should rule in our favor.”

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

The difficulty has reached a new all-time high

If the price increase of Bitcoin were not enough to excite bulls, the network's fundamentals are also encouraging.

Approximately in line with the previous week's closing price, the difficulty of network mining increased by over 10%, this was the largest increase since October of 2022.

Bitcoin network fundamentals overview. Source - BTC.com

The change has obvious implications for Bitcoin miners, this suggests that the ecosystem already has an advantage from higher prices.

Miners had already reduced the pace of their BTC reserves sales in recent weeks. At the same time, the difficulty increase is attributed to competition for block rewards returning to the sector.

Over the past week, the amount of Bitcoin held by miners has decreased as a result of Bitcoin's rapid price increase. The total value of bitcoin held by miners as of January 16 was 1,823,097 BTC, which is the lowest value since January 2020, according to data from on-chain analytics firm Glassnode.

Bitcoin miner BTC balance chart. Source - Glassnode

Despite this, miner difficulty has now surpassed its FTX reactions and has set a new all-time high in the process.

Bitcoin is currently retesting the estimated average cost of production price for Miners, Glassnode also reported last week that the majority of the gains had occurred before this.

It said that "reaching this level offers much-needed relief to miner income."

The accompanying chart demonstrated its proprietary “difficulty regression model,” which the company describes as “an estimated all-in-sustaining cost of production for Bitcoin.”

Bitcoin difficulty regression model. Source - Glassnode

Sentiment changes from fear to confidence as whales accumulate large positions

It's no secret that the average Bitcoin holder is experiencing some much-needed relief this month, but is it a case of excessive euphoria?

According to the traditional yardstick, the Crypto Fear & Greed Index, it's possible that the change in mood over Bitcoin's strength is too great, too soon.

On January 15th, the Index reached its highest point since April 2022. The change is significant, but not yet considered greedy.

Crypto Fear & Greed Index. Source - Alternative.me

The cryptocurrency market spent a significant portion of 2022 in the most extreme fear category.

Now, it has a score of 50/100, decreasing slightly into the new week to remain in "neutral" territory.

For the research firm Santiment, one of the primary factors that are influencing Bitcoin's recent strength is the increased interest in cryptocurrency.

The answer is clearly in the whale's behavior, it stated this in a Twitter post on the weekend.

Over the course of ten days from January 5th to the 15th, large and small whales increased their positions, which led to a supply and demand chain reaction. Over the course of that time, they bought 209,700 BTC.

Santiment described the data as "a definitive explanation of why crypto prices have fluctuated."

BTC accumulation annotated chart. Source - Santiment [Twitter]