New Bitcoin Support Level Formed Near $42,000
15 Jan, 2024 ● Coin news
The recent shift in Bitcoin derivatives suggests a loss of the bullish momentum that was prevalent over the past month. Additionally, Bitcoin's correlation with traditional markets has notably increased.
On January 14, Bitcoin's price experienced a notable drop to $41,690, followed by a 3% decrease the next day.
This marked the sixth instance within a month where the $41,800 support level was tested, leading traders to speculate about the implications of this movement and the potential for a rally above $44,000.
Analysts have linked the 9.1% drop in Bitcoin's price on January 12 to Bitcoin miners selling their coins, with CryptoQuant reporting nearly $1 billion worth of Bitcoin moved to exchanges, the highest in six years.
There is a growing concern among investors that the 44% increase in Bitcoin's hash rate over the past six months might pressure miners to sell more coins, including their reserves.
CoinShares, a digital asset management firm, forecasts that the cost of mining a single Bitcoin could rise to $37,800 after the halving in April 2024.
Their report, covering 19% of the current Bitcoin mining power, predicts that only five of the 14 companies analyzed will stay profitable post-halving, suggesting continued miner outflows to exchanges.
Bitcoin's price remained stable in the 30 days leading up to January 15, indicating that the introduction of the spot Bitcoin exchange-traded fund (ETF) on January 11 had minimal impact over a longer timeframe.
Interestingly, both the S&P 500 futures and gold prices in U.S. dollars saw a 0.5% increase during the same period.
Bitcoin's 50-day correlation with the U.S. stock market and gold has been significant over the past month, with correlations above 65% and 75% respectively.
Recent data indicates that macroeconomic factors are similarly influencing traditional assets and Bitcoin. For example, Germany, Europe's largest economy, reported a 0.1% GDP contraction for 2023, with indications of a slow economic recovery.
In the U.S., inflation remains a primary concern, with a 3.4% increase in the Consumer Price Index in November. Rubeela Farooqi, chief economist at High Frequency Economics, stated, “These readings support the U.S. Federal Reserve’s view that the policy stance should remain restrictive for some time.”
This has led investors to realize that central banks might take longer to reduce interest rates effectively, shifting their preference towards fixed-income investments.
The U.S. faces the dilemma of potentially issuing trillion-dollar stimulus packages amidst budget constraints and inflationary pressures limiting central banks' ability to lower interest rates.
To gauge if Bitcoin investors have turned bearish, one should examine the BTC futures premium or basis rate.
Monthly contracts are preferred by professional traders and typically trade at a 5% to 10% premium in neutral markets.
However, the BTC futures premium has stabilized at 9%, below the neutral threshold, indicating a lack of short-term bullish expectations.
It remains unclear what exactly caused the correction to $41,690, though it could be related to BlackRock CEO Larry Fink's remarks on the spot ETF being a “mere stepping stone to tokenization” of real-world assets, which may not be favorable for Bitcoin's short-term price.
Fink also commented on Bitcoin, saying, “I don’t believe it’s ever going to be a currency. I believe it’s an asset class.”
Sources:
https://cointelegraph.com/news/bitcoin-defend-key-price-level-44k-next
https://finance.yahoo.com/news/early-indicators-signal-no-quick-091412185.html
https://www.cbsnews.com/news/inflation-up-december-cpi-report/
