Crypto Markets Feb 13 CHK: Bitcoin weekly closes below 22,000, market corrects CPI data

Bitcoin closed the week in the red below $22,000 as investors anxiously awaited the upcoming CPI data.

Cryptocurrency Market

Bitcoin’s recent rally has improved the overall sentiment of market participants. This shift has boosted positive momentum across the industry as signs of a bull market begin to emerge.

The $25,000 zone remains the most important hurdle on Bitcoin’s momentum over the past 8 months. Most recently, the price attempted to break through this level without success, leading to a correction phase.

However, after a rally, a correction period is essential to continue the rally. Therefore, the recent sharp drop can be seen as a correction to form a pullback around the descending trendline, removing overheated positions in the futures market and initiating another spike.

However, the $21,000 level and the 50-day moving average, currently around the $20,300 region, are key support levels, which could act as the next targets for the downside.

On the 4-hour timeframe, the price started to turn down after being rejected from the strong $25,000 resistance area and gathering liquidity below the $22,300 support.

After the recent sharp drop, the price has reached a key support area, including the $21,000 level and the Fibonacci decisive levels between 0.382 ($21,604) and 0.5 ($20,785).

With BTC hitting strong support levels, it looks like the market will begin another bull run in the coming days.

Bitcoin’s recent rally has led many investors to believe that the bear market is finally over. Holders that lost money in the past few months are back in profit. However, there are still some warning signs, as this rally could be another bull trap in a bear market.

Following the bullish momentum of the past few weeks, short-term holders have been accumulating BTC at an average price lower than current prices and are making a profit.

While profit taking is not necessarily a negative sign, this metric shows that holders are selling BTC with the same pressure as when BTC hit ATH at $69,000. If the market does not absorb all these pressures, the correction may continue.

The altcoin market continued to correct slightly as BTC remained below the $22,000 region throughout the past week.

Leading the decline was Mina (MINA) when evaporating more than 11% in just the last 24 hours. SingularityNET (AGIX), the AI ​​project that broke out in the week, has gradually shown signs of cooling down with a decrease of 7.46%. Other altcoins in the top 100 such as Optimism (OP), The Graph (GRT), Fantom (FTM), ImmutableX (IMX), The Sandbox (SAND), Frax Share (FXS), Axie Infinity (AXS), Loopring (LRC) … also traded in the red when losing 5-8%.

In the short term, Ethereum (ETH) has been unable to break above the $1,550 threshold. After establishing a local intraday top at $1,548, the price turned back around $1,500 and ETH is still trying to hold onto this area.

The total amount of Ethereum (ETH) participating in staking in the Ethereum 2.0 deposit contract has reached a new ATH. According to data from analytics platform Glassnode, Ethereum staked in the ETH 2.0 contract is currently pegged at 15,803,847 tokens, a number that shows a steady uptrend since January 2021.

Ethereum fully transitioned to a proof-of-stake (PoS) consensus model last year to address a range of long-standing challenges, including issues related to energy usage, scalability, and scalability. and gas fees.

The upcoming Shanghai upgrade will help unlock Ethereum, giving staking participants access to their tokens. This is considered a bright spot that has pushed more Ether into the staking contract in the past few months.

Macro factors

In 2022, inflation increased sharply globally, even reaching record levels in some countries. The infographic below shows the projected inflation levels of economies in 2023, according to the International Monetary Fund (IMF).
Although the IMF believes that global inflation has peaked by the end of 2022 (8.8%), inflation rates in many economies are forecast to remain high this year.

The organization forecasts global inflation at 6.6% in 2023 and 4.3% in 2024, according to its latest updated report in January 2023.

The signals about maximum interest rates from Fed officials at the moment are not clear. In its latest policy meeting on February 1, 2023, the Fed reduced the rate of interest rate hikes to 0.25 percentage points, but said it would not cut rates this year. In the press conference after the Fed meeting, Fed Chairman Jerome Powell excited financial markets by saying that “the process of reducing inflation has begun”, but at the same time rebalancing investors’ expectations by How to confirm inflation is still high and bring it back to the Fed’s 2% target is a long battle. This view was reiterated by Mr. Powell at an Economic Club event in Washington DC on February 7, 2023

In the interest rate discussion, many people agree with the view that how far the Fed will stop raising interest rates will depend a lot on the Fed’s expectations about how much the economy will slow down this year. : “The big question now is: ‘Will the effects of the interest rate increase come true as expected? Did those effects come earlier, on a larger scale?’” Professor William English of the School of Management, Yale University said when talking to the Wall Street Journal.

The total Fed interest rate increase in this cycle has been 4.5%, bringing the federal funds rate (the US operating interest rate) to 4.5-4.75%. It was the Fed’s most aggressive monetary tightening campaign since the early 1980s, under President Paul Volcker. The Nobel Prize-winning economist Milton Friedman once said that growth and inflation are “long-latency and variable” effects of monetary policy.

If the delay is long, as Mr. Friedman said, the Fed’s drastic rate hikes so far have only just begun to have an impact on the economy and will work to slow down economic activity in a significant way. really this year. That way, the Fed won’t have to raise interest rates much more and won’t have to keep interest rates at their maximum for too long.

But if the lag is shorter, the rate hikes already have an effect on the economy and the Fed may find it necessary to raise rates even higher, or keep rates high for longer. to achieve the desired effect. The deceleration of rate hikes will give the Fed time to study the effects of the hikes already in place.

Many investors believe that the lag is long, and with such beliefs, they expect the Fed to cut rates this year and in 2024, as interest rates are now sufficient to trigger a recession. US economy. Reflecting this expectation, many market-determined interest rates, including home mortgage rates, have stopped rising or even fallen even though the Fed is still raising the federal funds rate.

But Goldman Sachs economists say the lag is short and the US economy is proving more resilient to high interest rates than expected. This means that interest rates will increase even higher and remain high for a long time. This assessment of Goldman Sachs is reasonable if you look at the US jobs report in January. In the first month of the year, the non-farm sector of the US economy created more than half a million new jobs, more than three times the forecast number. Immediately after the report was released, the Fed interest rates expected by the market increased compared to before.

“Observers share the same concern that the lagged effect of rate hikes will trigger a recession this year, but our model suggests otherwise. That is the economic slowdown effect of tight monetary policy will be much less in 2023,” said Goldman Sachs chief US economist David Mericle.

With a view similar to Goldman Sachs, some Fed officials also say that the central bank’s interest rate moves now have an effect on the economy more quickly than in the past, as the modern-day Fed has policy communication is clearer than in the past. For example, 30 years ago, the Fed did not notify the public of any changes at every monetary policy meeting.

“The market then had to guess what the Fed was doing. In such a world, policy takes time to affect the economy,” said Fed Governor Christopher Waller. Today, the Fed even signals early on what could happen in the future, so “I think most of the policy effect will be in the next quarter,” Waller said.