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US will see new 'inflation spike' - 5 things to know about Bitcoin this week

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Bitcoin (BTC) starts the first week of 2023 in an uninspiring place as volatility remains at bay – along with traders.

After failing to move over the Christmas and New Year holidays, BTC price action remains locked in a tight range.

Having sealed annual losses of nearly 65% ​​in 2022, Bitcoin has likely seen a classic bear market year, but for now, few are actively predicting a recovery.

The situation is complex for the average hodler, who is attentive to macro triggers courtesy of the US Federal Reserve and the impact of economic policy on dollar strength.

Ahead of Wall Street’s comeback on Jan. 3, Cointelegraph looks at the factors at play when it comes to BTC price performance over the coming week and beyond.

Bitcoin traders fear new lows amid stagnant prices

Bitcoin hodlers may be craving volatility, but so far, BTC price action has remained distinctly comatose, data from Cointelegraph Markets Pro and TradingView shows.

It seems that nothing – low-volume Christmas trading, quarterly and annual candlestick closes, and even macro data prints before then – can change the status quo.

As Cointelegraph reported, Bitcoin volatility managed to hit new record lows in the run-up to the end of the year, according to the Bitcoin Historical Volatility Index (BVOL).

Bitcoin Historical Volatility Index (BVOL) 1 week candlestick chart. Source: TradingView

Looking ahead, traders are conservative on what is in store for BTC/USD as signs of a fundamental shift remain wholly absent from market behavior.

“It takes a little bomb in resistance to get everyone upbeat again. This same trap has been happening all year 2022, but people don’t learn”, Il Capo da Crypto argued in day:

“12k is very likely.”

Annotated chart BTC/USD. Source: Il Capo of Crypto/ Twitter

His comments came along with a modest bullish move for Bitcoin, which crossed $16,700 for the first time in several days.

BTC/USD (Bitstamp) 1 hour candlestick chart. Source: TradingView

They were echoed by popular trader and analyst Pentoshi, who also flagged $12,000 as a key support zone for Bitcoin to revisit in terms of volume on higher timeframes.

Annotated chart BTC/USD. Source: Pentoshi/Twitter

Fellow analyst Toni Ghinea, meanwhile, once again doubled on a $11,000-$14,000 floor for BTC/USD.

“Expecting all these levels to be achieved in 2-3 months,” confirmed the Jan. 1 Twitter comment.

Michael Burry warns that inflation will return

With another week to go until the US Consumer Price Index (CPI) print for December hits, the first few days of January are relatively quiet when it comes to BTC macro price catalysts.

That doesn’t mean there’s nothing to watch, however, as the Purchasing Managers’ Index (PMI) and Non-Farm Payrolls data are all expected next week.

The short to medium term trend continues to be downwards in inflation, according to the CME Group’s FedWatch Tool, which in turn gives risky assets room to maneuver.

The Federal Reserve has not yet signaled that it will pivot on its interest rate hikes, although the pace of those hikes has already begun to slow. Once these signals come in, sentiment around risk should sharply strengthen.

Fed target rate odds chart. Source: CME Group

The Fed will release minutes from its Federal Open Market Committee (FOMC) meeting on Jan. 4, providing clear guidance on policy going forward.

For “Big Short” investor Michael Burry, however, even this more permissive scenario is not the end of the inflation story.

“Inflation has peaked. But it is not the last peak of this cycle,” he said. warned in a tweet on Jan. 2:

“We are likely to see lower, possibly negative CPI in the second half of 2023, and the US in recession by any definition. The Fed will cut and the government will stimulate. And we will have another inflation spike. Is not difficult.”

The results of the Fed’s policy were clear for stock market performance in 2022, with the S&P 500, for example, ending the year 1,000 points below many of the most popular estimates.

As markets await the first Wall Street trading day of 2023, the US Dollar Index is already struggling in what could be the first bright side of the year for crypto assets.

The US Dollar Index (DXY) is currently threatening to drop through uncontested support for over six months, after which the 100-point level re-enters.

“Markets: DXY on verge of breaking again, 10-year yields hitting resistance, WTI crude rebounds to resistance, gold stalled at resistance, stocks treading water,” Callum Thomas, founder and head of research at macro research firm Top Down Charts, summed up in part of the Twitter comments of the day.

US dollar index (DXY) 1-week candlestick chart. Source: TradingView

Difficulty due to drop amid dismal hash rate data

In the instinctive world of Bitcoin fundamentals, it’s business as usual at the beginning of the year.

Bitcoin’s next difficulty adjustment, scheduled for January 3, will wipe out gains made two weeks earlier, in a sign that miners remain under pressure over BTC price performance.

After climbing 3.27% on Dec. 19, the difficulty will drop around 3.5% this week, according to BTC.com data, thus failing to seal new all-time highs.

Bitcoin network fundamentals overview (screenshot). Source: BTC.com

The difficulty data alone provides an interesting insight into the health of Bitcoin “behind the scenes” – despite concerns about the financial stability of miners, competition for block subsidies remains noticeably high.

That said, the late December data captured a bleak snapshot for the average network participant, with the hash rate – an estimate of the aggregate processing power dedicated to mining – reaching its lowest levels of the year.

“This is by far the most brutal capitulation of Bitcoin miners since 2016 and possibly ever,” Charles Edwards, founder of Capriole Investments, commented at the time:

“The Hash Ribbons capitulation captured the lowest Bitcoin hash rate reading in 2022, with miners going bankrupt and defaulting under the great pressure of tight margins globally.”

Annotated graph of Bitcoin hash tapes. Source: Charles Edwards/Twitter

An attached chart showed the Bitcoin hash tape indicator entering another “capitulation” zone, in which miners turned off the hash rate en masse. A similar event took place in July 2022 and another one a year before that.

As Cointelegraph reported, public Bitcoin mining companies also continue to feel the pressure, with Core Scientific getting an interim bankruptcy loan. of nearly $40 million from creditors including BlackRock.

BTC supply goes to sleep

As volatility remains absent from Bitcoin for weeks on end, it is understandable that there is little impetus to sell among hodlers.

The latest on-chain data supports this theory, with the supply of BTC becoming increasingly dormant as speculators move away.

According For on-chain analytics firm Glassnode, the value of stationary stock in its portfolio over the past five to seven years has reached the highest level since January 2018.

BTC supply on the last active chart from 5-7 years ago. Source: Glassnode/Twitter

This trend has played out for much of the past year, as those who bought BTC in the last bearish cycle have seen their purchase prices bounce back.

As supply ages, the volume of currencies moving on a short-term basis also decreases, suggesting an absence of instinctive speculative trading.

The amount of the last BTC offering active between three and six months ago is now at five-year lows, Glassnode confirm. The supply active between three and five years ago is now at one-year lows.

BTC supply last active chart from 3 to 6 months ago. Source: Glassnode/Twitter

“Supply is getting rare again,” Stockmoney Lizards analytics resource he responded to similar dormancy data at the end of last month.

An attached chart showed the relationship between the dormant offer and the macro highs and lows for BTC price action.

Annotated chart BTC/USD. Source: Stockmoney Lizards/ Twitter

Feeling in no man’s land

In a similar sign that many market participants simply don’t know how to feel about the future of cryptocurrency, the sentiment is neither here nor there.

Related: ‘Crypto Winter’ Won’t End in 2023 – Bitcoin Advocate David Marcus

That’s a reading from the popular sentiment meter, the Crypto Fear & Greed Index, which continues to surf into territory just above “extreme fear”.

A story that already characterizes much of the period after the FTX crash, sentiment seems to be mixed about just how bad the state of crypto really is.

Of the Index’s five sentiment bands, only “fear” has lingered over recent weeks, with the latest trip deeper into “extreme fear” occurring in late November.

As Cointelegraph explained in a dedicated guide, Fear & Greed can provide important insights into market activity based on investor behavior. In 2022, it reached lows of 6/100, a score rarely seen in the lifetime of Bitcoin.

“Despite a brutal 2022 for cryptocurrencies in terms of sentiment, I have never been more excited about the sector for the long term from a fundamentals perspective,” Daniel Cheung, co-founder of investment firm Syncacy Capital, however concluded in a Twitter thread on Jan. 1.

Cryptofear and Greed Index (screenshot). Source: Alternative.me

The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cointelegraph.