Is it still possible that 2022 will be a good year? Although few believe this, analysts believe that short-term volatility will pass.
Bitcoin (BTC) begins the new week in an unusual place — one that is uncannily similar to where it was at this time last year.
After what has been described as a full year of “consolidation,” BTC/USD is now around $42,000, almost exactly where it was in week two of January 2021.
The ups and downs in between have been significant, but Bitcoin remains essentially in the middle of a now-familiar range.
The outlook varies depending on the perspective — some believe that new all-time highs are more than possible this year, while others are calling for many more consolidatory months.
With crypto sentiment at some of its lowest levels in history, Cointelegraph takes a look at what could change the status quo on shorter timeframes in the coming days.
Will $40,700 hold?
Bitcoin saw a trying weekend as the latest in a series of abrupt downward moves saw $40,000 support inch closer.
Data from TradingView showed BTC/USD hitting $40,700 on major exchanges before bouncing, a correction which has since held.
Ironically, that exact level was in focus on the same day in 2021, albeit during what turned out to be the more vertical phase of Bitcoin’s recent bull run.
Last September, the focus was also returned to $40,700, which acted as a turning point after several weeks of correction and eventually saw BTC/USD climb to all-time highs of $69,000.
Analysts now believe the chances of a breakdown to the $30,000 level are unquestionably higher.
“Weekly Close is just around the corner,” Rekt Capital summarized alongside a chart with target levels.
“Theoretically, there is a chance that $BTC could perform a Weekly Close above ~$43200 (black) to enjoy a green week next week. Weekly Close under ~$43200 however & BTC could revisit the red area below.”
Bitcoin ultimately closed at $42,000, since hovering at around that level in what could turn out to be some temporary relief for bulls.
“I think market puts in a lower high,” fellow trader and analyst Pentoshi forecast, adding that he believes $40,700 will ultimately fall.
An increasingly alluring target, meanwhile, lies at last summer’s $30,000 floor.
Consensus forms over dire outlook for cash
This week’s macro picture is especially complicated for risk asset investors, and Bitcoin and altcoins are no exception.
What the future holds, on the other hand, varies greatly from one pundit to the next.
The Federal Reserve of the United States is widely expected to begin raising interest rates in the coming months, causing investors to de-risk and crypto bulls to suffer. “Easy money,” which started flowing in March 2020, will now be much more difficult to come by.
Ex-BitMEX CEO Arthur Hayes neatly summarised the bearish viewpoint in his latest blog post last week.
“Let’s forget what non-crypto investors believe; my read on the sentiment of crypto investors is that they naively believe network and user growth fundamentals of the entire complex will allow crypto assets to continue their upward trajectory unabated,” he wrote.
“To me, this presents the setup for a severe washout, as the pernicious effects of rising interest rates on future cash flows will likely prompt speculators and investors at the margin to dump or severely reduce their crypto holdings.”
This week sees the U.S. consumer price index (CPI) data for December released, numbers which will likely feed into the story of surprise inflation gains.
Hayes is far from alone in worrying over what the Fed may bring to crypto this year, with Pentoshi among others likewise calling a temporary end to the bull run.
“And the final question is, can crypto ignore the Fed if it decides to go all out wielding a deflationary machete? I doubt it,” analyst Alex Krueger concluded in a series of tweets on the issue this weekend.
“‘Don’t fight the Fed’ applies both ways, up and down. If the Fed is *too hawkish* then Houston, we have a problem.”
There were some optimists left in the room. Dan Tapiero, Founder and CEO of 10T Holdings, told followers to “ignore” the recent rout and focus on an unchanged long-term investment opportunity.
“Most bullish macro backdrop in 75 years,” he said.
“Booming economy supported by massive negative real rates. Fed will never equalize rates with inflation. Stay long stocks and Bitcoin and ETH. Hodl through short term volatility. Real Dollar cash savings will continue to lose value.”
Here’s a look at the Effective Fed Funds Rate and Inflation Rates when the Unemployment Rate was at 3.9%, as it is today.
Find the outlier… pic.twitter.com/zU1zRj1uXC
— Charlie Bilello (@charliebilello) January 7, 2022
Tapiero highlighted data compiled by Charlie Bilello, founder and CEO of Compound Capital Advisors.
RSI hits two-year lows
Amid the gloom, not everything is pointing to a protracted bearish phase for Bitcoin specifically.
As Cointelegraph has been reporting, on-chain indicators are calling for upside in droves — and historical context serves to support those demands.
This week, it’s Bitcoin’s relative strength index (RSI) which continues to headline, reaching its lowest levels in two years.
— Bitcoin Archive 🗄🚀🌔 (@BTC_Archive) January 9, 2022
The relative strength index (RSI) is a key metric used to determine whether an asset is “overbought” or “oversold” at a given price point.
Plumbing the depths at $42,000 suggests that the market considers such a level to be too extreme, and a rebound should occur to balance it.
In January of last year, the RSI was sky high and well within “overbought” territory, while BTC/USD was trading at the same price.
“The Bitcoin RSI is on the lowest point in 2 years on the daily. March 2020 & May 2021 were the last ones. And people flip bearish here / want to short,” a hopeful Cointelegraph contributor Michaël van de Poppe commented.
Cointelegraph noted similarly bullish hints on the monthly RSI chart last week.
Hash rate recoups Kazakhstan losses
Another blip from last week already “curing itself” comes from the realm of Bitcoin fundamentals.
After hitting new all-time highs throughout recent weeks, Bitcoin’s network hash rate took a hit when turbulence in Kazakhstan comprised internet availability.
Kazakhstan, home to around 18% of hash rate, has since stabilized, allowing the hash rate to mostly return to prior levels of 192 exahashes per second (EH/s).
At one point down to 171 EH/s, responses to what may have reminded some of last May’s China mining ban appear to have lifted hash rate and preserved record-breaking miner participation.
Bitcoin’s network difficulty, despite the upheaval, still managed to put in a modest increase this weekend and is currently on track to do so again at its next automated readjustment in just under two weeks.
For context, China’s mining rout resulted in a 50% decrease in hash rate. It took about six months to make up for the losses.
PlanB, the creator of the stock-to-flow-based BTC price models, has long stated that it is past time for a Bitcoin trend reversal.
Despite the fact that his creations are currently being put to the test — and the accompanying storm of social media criticism — PlanB remains more optimistic than most when it comes to mid- to long-term price action.
“I know some people have lost faith in this bitcoin bull market,” he acknowledged this weekend.
“However we are only halfway into the cycle (2020-2024). And although BTC experiences some turbulence at $1T, the yellow gold cluster at S2F60/$10T (small black dots are 2009-2021 gold data) is still the target IMO.”
He was referring to the stock-to-flow value for Bitcoin, gold and other assets as part of his stock-to-flow cross-asset (S2FX) model, which calls for an average BTC/USD price of $288,000 during the current halving cycle.
Closer to home, however, a more simplified comparison between Bitcoin this cycle and its two previous ones saw a feasible trajectory beginning with a U-turn now.
A separate model, the floor model, which demanded $135,000 per bitcoin by the end of December, has now been discarded after failing to hit its target for the first time ever in November.