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The US will see another ‘inflation spike’ this week – 5 things you need to know in Bitcoin

Bitcoin (BTC) is starting the first week of 2023 in an uninspiring place as volatility stays away – as do traders.

After holding no movement over the Christmas and New Year holidays, BTC price action remains locked in a narrow range.

After closing annual losses of nearly 65% ​​in 2022, Bitcoin has arguably experienced a classic bear market year, but few are actively predicting a recovery for now.

The situation is complex for the average hodler, who is looking for macro triggers from the United States Federal Reserve and the impact of economic policies on dollar strength.

Ahead of Wall Street’s return on Jan. 3, Cointelegraph takes a look at the factors at play when it comes to BTC’s price performance in the week ahead and beyond.

Bitcoin traders fear new lows amid flat price

Bitcoin hodlers may wish for volatility, but so far BTC price action has clearly remained comatose, according to data from Cointelegraph Markets Pro and TradingView.

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

In fact, as Cointelegraph reported, Bitcoin volatility managed to reach new all-time lows leading up to the end of the year, according to Bitcoin’s historical volatility index (BVOL).

Bitcoin historical volatility index (BVOL) 1 week candlestick chart. Source: TradingView

Looking ahead, traders are thus conservative about what lies ahead for BTC/USD as signs of a fundamental shift remain completely absent from market behavior.

“It takes a little pump in resistance to make everyone bullish again. This Same Bull Trap Has Been Going On All Year 2022 But People Don’t Learn,” Crypto’s Il Capo argued on the day.

“12k is very likely.”

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

His comments came along with modest upward movement for Bitcoin, which crossed $16,700 for the first time in days.

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

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

BTC/USD annotated chart. Source: Pentoshi/Twitter

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

“I expect all these levels to be reached within 2-3 months,” Twitter commentary confirmed on Jan. 1.

Michael Burry warns that inflation will return

With one week left until the United States consumer price index (CPI) printout for December hits, the early days of January are relatively quiet when it comes to macro BTC price catalysts.

That doesn’t mean there’s nothing to look forward to, though, as data on the Purchasing Managers’ Index (PMI) and nonfarm payrolls are all expected in the coming week.

According to the CME Group’s FedWatch Tool, the short-to-medium term trend remains one of declining inflation, giving risky assets more leeway.

The Federal Reserve has yet to signal that it will implement its rate hikes, despite the fact that the pace of those hikes has already begun to slow down. Once those signals come in, sentiment around risk-on should clearly strengthen.

Graph of probability percentages from the Fed. Source: CME group

The Fed will release the minutes of the Federal Open Market Committee (FOMC) meeting on January 4, with clear guidance on future policy.

However, for “Big Short” investor Michael Burry, even that more indulgent scenario is not the end of the inflation story.

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

“We will likely see CPI lower, potentially negative in 2H 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. It’s not difficult.”

The results of the Fed’s policy can be clearly seen for the performance of the stock market 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 grappling with what could be the first silver lining of the year for crypto assets.

The US dollar index (DXY) is currently on the verge of falling through more than six months of undisputed support before reaching the 100-point level again.

“Markets: DXY About to Collapse Again, 10-Year Yield Reaches Resistance, WTI Crude Recovered to Resistance, Gold Stopped at Resistance, Stocks Enter Water,” Callum Thomas, founder and chief of research at macro-research agency Top Down Charts, summarized in part of Twitter comments on the day.

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

Difficulty due to drop amid grim hash rate data

In the knee-jerk world of Bitcoin fundamentals, it’s business as usual at the start of the year.

Bitcoin’s upcoming difficulty adjustment on Jan. 3 will wipe out gains made two weeks earlier, a sign that miners continue to be under pressure from BTC’s price performance.

After rising 3.27% on Dec. 19, the difficulty is set to fall by an estimated 3.5% this week, according to data from BTC.com, failing to hit new all-time highs.

Overview of the basics of the Bitcoin network (screenshot). Source: BTC.com

Difficulty data on its own offers an interesting insight into Bitcoin’s health “under the hood” – despite concerns about miners’ financial stability, competition for block grants remains remarkably high.

That said, data from late December provided a grim snapshot for the average network participant, with the hash rate — an estimate of total mining processing power — reaching its lowest level for the year.

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

“The capitulation of Hash Ribbons has recorded the lowest Bitcoin hash rate of 2022 as miners go bankrupt and default under the heavy pressure of globally squeezed margins.”

Bitcoin hash ribbons annotated chart. Source: Charles Edwards/Twitter

An accompanying chart showed that Bitcoin’s hash ribbons indicator entered another “capitulation” zone, in which miners turned off the hash rate en masse. A similar event happened in July 2022 and another year before that.

As Cointelegraph reported, Bitcoin’s public mining companies also remain under pressure, with Core Scientific receiving a nearly $40 million preliminary bankruptcy loan from creditors including BlackRock.

BTC supply goes to sleep

As volatility remains absent from Bitcoin for weeks, there is understandably little incentive to sell among hodlers.

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

According to on-chain analytics company Glasnode the amount of stock in the wallet over the past five to seven years has reached its highest since January 2018.

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

That trend has been present for much of the past year, as those who bought BTC in the last halving cycle see their purchase prices return.

As the supply ages, so does the number of coins moving in the short term, suggesting an absence of reflexive speculative trading.

The amount of BTC supply last active between three and six months ago is now at its lowest point in five years, Glassnode confirms. The supply that was active three to five years ago is now at its lowest point in a year.

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

“Supply is getting scarce again,” analysis source Stockmoney Lizards responded to comparable dormancy data at the end of last month.

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

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

Sentiment in no man’s land

In a similar sign that many market participants just don’t know how to feel about crypto’s future, 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 gauge, the Crypto Fear & Greed Index, which continues to surf just above “extreme fear.”

A narrative that has characterized much of the post-FTX meltdown period, sentiment appears to be confused about how bad the state of crypto really is.

Of the Index’s five sentiment categories, only “fear” has held up in recent weeks, with the latest step deeper into “extreme fear” at the end of November.

As Cointelegraph explained in a dedicated guide, Fear & Greed can provide important insights into market activity based on investor behavior. In 2022, it hit a low of 6/100, a score rarely seen in Bitcoin’s life.

“Despite a brutal 2022 for crypto in terms of sentiment, I have never been more excited about the industry over the long term from a fundamental perspective,” said Daniel Cheung, co-founder of investment firm Syncacy Capital. closed in a Twitter thread on Jan 1.

Crypto Fear & 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.

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