Sam Cooling
Bitcoin bulls are on parade, as euphoria swept through crypto markets on Tuesday following a sensational +10% day for Bitcoin (BTC).
The surge in crypto prices coincided with the latest consumer price index reading and comes in the aftermath of a storm around US banking and financial institutions.
Many have claimed the rush of capital into Bitcoin represents the asset’s power as an inflation hedge.
Why did Bitcoin (BTC) Explode to $26k?
While Bitcoin has not been trading as closely with equities as it did for much of 2022, its price is still mainly driven by macro data.
Some analysts expect to see a bigger return to that correlation, despite idiosyncratic events driving much of the action in 2023 – and this week’s movements suggest they could be right.
As core CPI – which removes volatile food and energy prices – showed a monthly increase slightly above economists’ expectations and a year-over-year change in line with expectations.
The US Consumer Price Index (CPI) rose 0.4% in February, a slight dip from January’s 0.5% – in line with economists’ expectations polled by Dow Jones.
On an annual basis, the CPI rose 6.0% in February compared to January’s 6.4%. Excluding food and energy components, the CPI increased by 0.5% after rising 0.4% in January.
#CPI “really doesn't matter. What has happened over the last 3 days has done Powell's job for him. Credit creation at banks will collapse and the economy will slow even in a good scenario. Inflation is almost certain to taper off as a result ..”. (con’t)
– JPM desk
— Carl Quintanilla (@carlquintanilla) March 15, 2023
The core CPI gained 5.5% in the 12 months through February after advancing 5.6% in January.
Despite the dip, traders are still anticipating a 25-basis-point rate hike at the Federal Reserve’s meeting in March.
Bitcoin (BTC) Price Analysis
With Bitcoin (BTC) currently trading at $24,845 (a 24-hour move of +0.29%) – price structure can be considered bullish with a hint of consolidatory action.
This follows the huge 10% pump which saw Bitcoin surge to $26,555 on the back of positive CPI data, which reclaimed the longstanding key price level of $25,000.
Markets took a general view that Federal Reserve chairman Jerome Powell is on track for his 2% inflation target – and priced in expectations for the next FOMC meeting still on the cards.
Markets are now in retracement after rejection above $26,000 slammed the brakes on breakout price action.
Since the onset of the chaos around Silvergate, Signature Bank and Silicon Valley Bank, Bitcoin has shocked markets posting a +26% gain.
This was aided with vital support by a hard bounce off the 200-day MA.
Bitcoin is now in consolidatory posturing, as bulls are fighting to flip $25,000 to a much-needed level of support that could prime BTC to resume rallying.
Indeed, the price range between $26,000-$29,000 is characterized by uniquely low volume profiles – which suggests Bitcoin could gain ground quickly above $25,000.
The RSI is riding high (a bearish divergence) at 63 – with the indicator heating up alongside yesterday’s upside price action.
However, with the RSI quickly cooling off, this could be little more than a signal that BTC needs to consolidate for 24 to 48 hours.
The MACD, on the other hand, is very bullish at 281. This comes as the move up saw BTC regain position atop both its 200d and 20d MAs – which have suppressed price action in recent weeks.
Bitcoin (BTC) On-Chain and Open Interest
To clarify Bitcoin’s current market posturing further, confirmation can be sought from on-chain data flows and open interest levels.
The huge push up this week was forecast well by On-Chain data, with exchange net flow over the weekend sending a clear signal that 25 days of sell-off price action had come to an end.
But worryingly, after the impressive upside price action, it seems that a Bitcoin sell-off could be back on the cards.
Looking at Exchange Net Position Change, the past 48 hours have seen a return to Bitcoin inflows – as traders are seemingly moving to take profit at these heights.
Indeed, most of the current exchange inflows comes from coins last active 1 week to 1 month ago, suggesting that any sell-off could come from short-term holders keen to lock in profits after a frightful dip below $20,000 induced unrealized losses on higher entry prices.
Net Transfer Volume from/to Exchanges provides additional insights into these increased inflows.
The data reveals that since Monday at least 38,241 BTC has moved into exchange wallets – poised to sell, that’s $950m worth.
This comes as speculation is rife of an impending $1bn Bitcoin scoop by Binance CEO Changpeng Zhao.
CZ announced that Binance will convert their $1B industry recovery fund from $BUSD to #Bitcoin, ETH, & BNB. Citing “changes in stable coins and banks”
Smart move? pic.twitter.com/c5vcesILPJ
— Crypto Crib (@Crypto_Crib_) March 13, 2023
Open Interest also helps build an image of market sentiment, with a huge spike in open interest chasing the huge move back up above $25,000.
Decisive price action driven by the CPI appears to have emboldened traders that have recently been side-lined by near-black swan-tier market chaos.
Over at the Binance exchange, an additional $500m in open interest has been placed on the table.
And looking at the long vs short ratios, there is a clear bullish divergence in market sentiment – as a majority of open interest is stacking up in taker buy positions.
But this could be a cause for concern when open interest amasses significantly in an asymmetric manner – it paints a big and potentially very lucrative target for market manipulation.
In layman’s terms, if the majority of the money on the table is stacking up in long positions, then market makers stand to make the most from downside price action.
Bitcoin (BTC) Price Prediction
Overall then, Bitcoin has enjoyed an impressive few days of upside price action against a backdrop of positive macroeconomic sentiment and backlash against fractional reserve banking.
With $25,000 forming the critical price level to watch – a flip to support could prime Bitcoin for an upside target above $28,000 (+13% to this historic support level).
Indeed, BTC technical structure looks bullish – with a general need for a small consolidation period before the next attempted leg up.
Indicators reinforce this view, with a bullish MACD suggesting BTC could soon be bolstered by support from a rising 20d MA – and a rapidly cooling RSI signifying consolidation is working.
On-Chain contrasts this, painting a gloomy picture of an imminent resumption of sell-off activity as STF traders take profit at around $25,000.
Open-Interest could be a cause for concern, as parading bulls have racked up nearly half a billion in mostly long positions.
And this leaves BTC with downside risk to the nearest lower support level at $21,750 (a -12.17% move).
Therefore Bitcoin’s current Risk: Reward ratio sits at 1.07 – a good entry on paper, but not especially lucrative or attractive.
My belief is that emboldened sentiment could become a big target; trade carefully and await a retest of $25,000 before decisively committing to an entry here.
Related News
- BTC Soars Above $26,000 Following Positive Inflation Data
- Coinbase Files Challenge to SEC Insider Dealing Charge – Says Regulator Should Set Clear Rules First
- Top Reasons Why Crypto Prices Are Soaring This Week Despite Banking Crisis
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This article was written for Business 2 Community by Sam Cooling.
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