Market Recap: Bitcoin’s Make-or-break Moment

Bit­coin has been stuck in a range between $40,500 and about $44,500 wait­ing for bulls or bears to push it above or below sup­port or resistance. 

Investors seem to be ditch­ing risker assets, like tech equi­ties and cryp­tocur­ren­cy, in favor of less volatile ones like cash and index ETFs. 

The psy­chol­o­gy with­in the mar­ket­place has become fear­ful and uncer­tain while blockchain net­works con­tin­ue to grow in hash rate and oth­er metrics.

Over half a bil­lion dol­lars have flowed out of cryp­tocur­ren­cy funds in the last five weeks show­ing a decrease in insti­tu­tion­al support.

Make-or-break moment

Over the course of Jan­u­ary, bit­coin has con­sol­i­dat­ed between the price of $40,500 and $44,200. As this range becomes tighter, a volatile move to the upside or down­side becomes more and more like­ly. This con­sol­i­da­tion has pushed bit­coin into a make-or-break moment and cre­at­ed a fight between bulls and bears over which direc­tion the mar­ket goes.

Bit­coin has already had a quick dip down past the $40,000 range, as is cir­cled above, and it is unclear if investors and traders will be able to push back should it break through sup­port again. 

Cur­rent over­all sen­ti­ment sug­gests a down­ward trend may be more like­ly as investors move out of riski­er assets, such as tech stocks and cryp­tocur­ren­cy and back to cash. Uncer­tain­ty may be creep­ing back in with com­ing inter­est rate hikes from the Fed­er­al Reserve which have his­tor­i­cal­ly cor­re­lat­ed with down mar­kets. If enough lever­aged long posi­tions are stacked near $40,500 and bit­coin breaks below that lev­el, it could trig­ger a series of stop-loss orders which could then trig­ger a cas­cad­ing price event and deep­er liquidations.

On the oth­er hand, should bulls hold the line on $40,500 a volatile swing to the upside could occur forc­ing short posi­tions to buy. 

A cryp­to analy­sis Twit­ter account by the name of The­Re­alPlanC not­ed how cryp­tocur­ren­cy has entered the third phase of a trad­ing roller coast­er and that it should regain strength as long as it can remain above $40,000.

Market psychology diverges from network support 

The cor­re­la­tion between cryp­to mar­kets and equi­ty mar­kets has increased as of late show­ing that the two have become aligned in terms of trad­ing and invest­ing mind­sets. But the cur­rent mar­ket psy­chol­o­gy seems to have diverged from what is actu­al­ly hap­pen­ing on major blockchains. 

Right now, the over­all mar­ket sen­ti­ment of both cryp­tocur­ren­cy and equi­ties sways toward the neg­a­tive, large­ly due to the uncer­tain­ty of how the Fed­er­al Reserve’s rate changes could affect the econ­o­my as well as how the Covid-19 Omi­cron vari­ant could sti­fle job growth.

Bit­coin has been con­tin­u­ous­ly falling from its all-time high on Nov. 10, 2021, due to a series of con­cerns start­ing with envi­ron­men­tal impact and now its use as an infla­tion hedge as the Fed looks to decrease infla­tion. Sim­i­lar­ly, the S&P 500 has fall­en over 3% in the last week, like­ly a result of the mar­ket’s reac­tion to the Fed and Omi­cron as well.

Head­ing in the oppo­site direc­tion of their respec­tive prices are Bit­coin and Ethereum’s hashrates, or quan­ti­ty of com­put­ing pow­er secur­ing their net­works. In the last 30 days, Bit­coin’s hashrate has increased from 166.84 mil­lion ter­a­hash­es per sec­ond to near­ly 194 mil­lion ter­a­hash­es per sec­ond, reach­ing a new all-time high.

In the same time frame, Ethereum’s hashrate has increased by 37,463 giga­hash­es per sec­ond. Increased hashrates indi­cate fur­ther invest­ment into min­ing equip­ment and infra­struc­ture which also sig­nals faith in future price appreciation.

Will Clemente, a pop­u­lar cryp­to ana­lyst and the lead insights ana­lyst at the bit­coin min­ing com­pa­ny Block­wareteam, said on Twit­ter, “After the Chi­na min­ing ban over sum­mer, Bit­coin hash rate has recov­ered to new all-time highs. This means the Bit­coin net­work is cur­rent­ly more secure than ever before.”

The diver­gence of price and hashrates shows that mar­ket par­tic­i­pants are show­ing fear while min­ers and those par­tic­i­pat­ing direct­ly with the net­work are show­ing faith by becom­ing even more involved. Oth­er Bit­coin net­work sta­tis­tics, like unique address­es and out­put val­ue per day, show pos­i­tive trends. Though some on-chain met­rics seem pos­i­tive, mar­ket psy­chol­o­gy and sen­ti­ment tend to be more pow­er­ful in sway­ing markets.

Fund outflows

Anoth­er met­ric that aligns with the neg­a­tive mar­ket sen­ti­ment is the out­flow of cryp­tocur­ren­cy from funds. Out­flows from cryp­to funds over the last five weeks total more than half a bil­lion dol­lars, accord­ing to a report from Coin­Shares, a provider of dig­i­tal asset solu­tions for insti­tu­tion­al investors. 

The report shows that in just this last week $73 mil­lion was removed from cryp­to funds, show­ing the reduc­tion of expo­sure to dig­i­tal assets among insti­tu­tion­al investors. 

Bit­coin took the major­i­ty of the hit with it mak­ing up $53 mil­lion of the $73 mil­lion of out­flows this week and $317 mil­lion of $532 mil­lion in the last five weeks. Ethereum made up much of the remain­ing out­flows with the removal of $50 mil­lion in the last week and $230 mil­lion in the last five weeks.

Tomorrow

Investors should expect bit­coin to remain in a tight range and to con­tin­ue test­ing the $40,000 sup­port and $44,500 resis­tance lev­els until broad­er mar­kets pres­sures occur. By exten­sion, ether and oth­er alt­coins trad­ing at more volatile per­cent­ages in line with bit­coin’s move­ments should be expect­ed. Thurs­day’s ini­tial job­less claims report may be the cat­a­lyst to push bit­coin below sup­port or past resistance.

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