Although Bitcoin has not yet died for the 500th time, market panic may easily persuade you otherwise, with analysts predicting a gradual comeback to higher levels.
Bitcoin traders are still digesting the effects of the previous week’s massive price decline, which peaked at $41,900 at one time.
A moderate recovery is currently up against some serious competitors, the first of which is $50,000.
As a sensation of déjà vu pervades the markets, analysts are coming to terms with the realization that the blow-off top they had predicted by the end of Q4 2021 will most likely not materialize.
There’s also the possibility that a new, deeper BTC price floor will have to be established before a true recovery can take place.
What might occur in the final weeks of the year? For the coming week, Cointelegraph looks at five things that should be on everyone’s mind.
Is it possible to have a “bullish” first quarter of 2022?
BTC/USD is down around $48,000, down 16 percent in a week after approaching $50,000 earlier this weekend.
In comparison to all-time highs of $69,000, the highest loss overnight on Friday is currently 39 percent, which is noteworthy but not unprecedented in Bitcoin standards.
As price forecasts become less reliable, the focus is shifting to a rebound in 2022.
In a Twitter exchange, William Clemente predicted, “For what it’s worth, my basic case is that we consolidate/range through EOY, carve out a regime of mixed-negative funding rates/premium, before bullish Q1.”
After a cascade of position liquidations, derivatives markets will be a focus when it comes to the sustainability of price recovery.
The events of Friday managed to “reset” open interest on Bitcoin futures to levels last seen in September at similar price levels to the bottom of the drop.
New CPI figures, new inflation concerns
Macro markets are already on a knife’s edge, but new consumer price index (CPI) data this week could add more fuel to the fire.
CPI data in the United States are expected to outperform even October’s surprise 6.2 percent year-on-year estimate.
Lyn Alden, financial commentator and founder of Lyn Alden Investment Strategy, took note of economists’ predictions. She went on to say that housing, a lagging indicator that wasn’t as strong last month, would most certainly play a role in the outcomes.
Last week, inflation was back in the news after Federal Reserve Chair Jerome Powell seemed to hint that “transitory” was no longer an accurate description.
Bitcoin reacted swiftly, and bulls will be watching the fresh CPI data with bated breath in the hopes of a repeat of October’s knee-jerk reaction.
Despite recent volatility, bitcoin is believed to be the best conceivable workaround for purchasing power protection, not least because inflation is substantially higher when non-CPI assets are taken in.
Late last month, MicroStrategy CEO Michael Saylor, a well-known CPI critic in Bitcoin circles, cautioned that “everyone has double-digit inflation if they measure it correctly and needs Bitcoin more than they think.”
Meanwhile, central bank money printing, particularly by the Fed, has recently been criticized by the leader of another sovereign state.
“Could you please quit printing money?” El Salvador’s President, Nayib Bukele, responded to Powell’s “transitory” address by saying, “You’re only going to make things worse.”
Take note of the chasm!
This week, Bitcoin faces a “huge” futures gap, which may not close instantly, but traders should be aware of it, according to Cointelegraph contributor Michal van de Poppe.
Futures may still represent a target for bullish momentum, despite derivatives traders contributing to the bearish pressure over the weekend.
CME futures finished at $53,545 on Friday, a $5,000 premium over spot prices at the time of writing.
BTC/USD may certainly climb to “fill” that gap, clearing the way for at least a regain of $50,000 and support, and potentially even a return to its $1 trillion market cap, as has been the case in the past.
“Later today, there will be a large CME gap to $53.5K,” Van de Poppe said on Sunday.
In the meantime, the dip closed a previous downside gap that had developed at the end of November.
“There were some minor moves on the markets over the weekend,” Van de Poppe noted, “but I expect the real volatility to come in when the weekly starts and the futures for the United States relaunch.”
As mood falls to 5-month lows, there are echoes of March 2020.
Even though it happened only a few months after the price drop in September, last week’s chaos is drawing the greatest analogies to the events of March 2020.
Coronavirus was the backdrop to volatility back then, as it is now, with BTC/USD losing 60% of its value in a single week.
The stakes were lower this time, leading to reports of a “mini” re-run later this month.
One significant difference is in market composition: leveraged traders and their impact on the markets were considerably smaller phenomena 18 months ago.
In a series of tweets on Saturday, Danny Scott, CEO of exchange CoinCorner, stated, “This Bitcoin dip was NOT driven by sentiment.”
While the sentiment is still favorable, Scott believes that the timing is causing it to shift and that 2021 will conclude with a boom rather than a bust. The gradual rebound from the lows began in March 2020 and barely accelerated eight months later.
Meanwhile, the Crypto Dread & Greed Index reveals the surprise among many market participants, with a score of 16/100 indicating “severe fear” and the lowest since July.
“Fear hasn’t been this low since the crash in May,” Van de Poppe said of the Index.
De facto, the hash rate is at an all-time high.
One feature of Bitcoin that does not appear to be bearish? The principles of networking.
The panic among spot traders and doomsday stories in the mainstream press did not affect Bitcoin’s core network activity, highlighting miners’ long-term outlook.
Even a drop to $42,000 did not affect performance, and hash rate — a measure of the network’s computing capacity — is still around all-time highs.
Various estimates dispute what the highest-ever Bitcoin hash rate tally was.
Hash rate is at its highest-ever sustained levels, according to the popular MiningPoolStats database.
The seven-day average for blockchain is currently 162 exahashes per second (EH/s), down 18 EH/s from the pre-China crackdown in May.
Regardless, the widespread belief persists that spot price movement is inextricably linked to hash rate trends.
The difficulty, which keeps Bitcoin stable regardless of hash rate fluctuations, is set to rise by little under 1% in the next six days. Previously, the metric was expected to fall for the second time in a row.