Downside Likely for Bitcoin
Eighty Eight Research | Jan 20, 2023 04:19AM ET
Bitcoin (BitfinexUSD) price maintained a comfortable range over 64 days before the U.S CPI data release. The price momentum rallied BTC over 24% in the last seven days, while the knock-on effect of the BTC rally has appreciated the Top 20 cryptocurrencies on average by 13.50% in the previous seven days.
Additionally, the price action has met Nov 2022 resistance ahead of the U.S Federal Reserve meeting in 3 weeks. An over-extended stochastic and diminishing momentum may allow the price to breathe before pushing higher towards Sep 2022 resistance based on the narrative that the Fed may pause. Alternatively, if the Fed continues to hike and market sentiment changes towards a recession, we may see a price action correct between 12 and 17 percent in the BTC/USD pair.
Total exchange inflow is a promising indicator for measuring selling pressure or volatility. Considering the last two weeks, more significant inflows to all exchanges were captured for BTC as volatility escalated, pushing the price out of a 64-day range. Moving over to Net flows on all exchanges post, the market rally has seen outflows dominate, leading us to believe that smart money chooses to rebalance their holdings after closing derivative positions.
Supporting that evidence, Inflow and Outflow Mean to MA7 across exchanges signifies either cycle tops or bottoms through the peaks of the purple line (Mean, MA7). This leads us to anticipate that from an exchange perspective, we would see a correction in price before the momentum picks up again, supporting an overbought stochastic and diminishing momentum.
The open interest of BTC does support the narrative of volatility increasing steadily despite the recent drop, which falls in line with significant outflows. Overall, the market does remain net long in the derivative market, indicated by Funding Rates on all exchanges.
Mining activity and a leverage ratio support a near-term correction of BTC price action. The Miner Position Index measures is dollar-denominated total miner outflow to its moving average over one year. The index considers high values (Purple Line) an indication that miners send coins to exchanges which suggests bearish price action approaching. That’s what can be seen over the last two weeks.
Get The News You Want
The leverage ratio of the retail market volatility has eased significantly as the leverage ratio across exchanges decreased sharply. This means that investors have reduced their exposure to the derivative market. In comparison, it does remain contradictory to open interest and the funding rate charts, however, adding to the supporting idea that smart money took profits at the current levels and deleveraged their open positions.
Overall, market sentiment has changed to near-term bearish from an on-chain perspective. If we continue to see the macro environment deteriorate, namely the U.S. stock market, in conjunction with a hawkish tone by the Fed in the coming weeks, BTC price action will correct sharply to the downside.
Disclosure: The research conducted is for informational purposes only and does not constitute financial advice.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.