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Breakout or $40K Bull Trap? 5 things you need to know about Bitcoin this week

By 10 Mins Read

Bitcoin (BTC) starts the first week of December above $40,000, in better shape than it has been since early 2022.

BTC price action is already pleasingly bullish as the month begins, with the weekly close providing a trip above $40,000 for the first time since April of last year.

As the bull market has recently shown an upward trend due to macroeconomic changes and expectations for America’s first spot ETF (exchange-traded fund), short selling is disappearing and liquidity is weakening.

Despite concerns and some predicting a massive price retracement, Bitcoin offers some respite to sellers who consistently miss out on profits or are left waiting for an entry price that never comes.

The party atmosphere isn’t just reflected in the markets. Bitcoin miners are busy preparing for the halving and the hash rate is already at an all-time high, so this trend is likely to continue this week.

Is there more upside left? Or is Bitcoin getting ahead of itself?

This is a question that long-time market participants will be asking going forward as the legacy market opens and BTC price corrects beyond $40,000.

Cointelegraph takes a closer look at the state of Bitcoin this week and examines potential volatility catalysts for hodlers.

Bitcoin has surged past $40,000, but a serious correction remains on the watchlist.

Bitcoin is clearly reminding investors of “Uptober” by unwinding shorts and overcoming key resistance levels as the month begins.

The fun started with the weekly close where $40,000 appeared for the first time since April last year.

BTC/USD 1-hour chart. Source: TradingView

However, the rise did not slow down and BTC/USD continued to rise, reaching a current local high of $41,800, according to data from Cointelegraph Markets Pro and TradingView.

With this, Bitcoin eliminated over $50 million worth of short positions on December 4 alone, according to statistics from CoinGlass. This is already the largest single-day tally since November 15.

Liquidating BTC (screenshot). Source: Coinglass

Perhaps understandably, many traders are calling for a continuation of the rally towards $50,000, with leveraged short liquidity slowly disappearing as BTC price performance improves.

“There are still some aggressive price chasers here,” popular trader Skew wrote. applied area Real-time market movements.

“What’s more important is whether the larger market players actually allow some of the bids to happen. Prices are expected to rise further as they fill up. Obviously $40,000 is the price for an institutional player.”

Still, not everyone is confident the good times will continue.

For popular trader Crypto Chase, current levels represent an ideal position to “trap” a long buy and push Bitcoin $10,000 lower.

“After the early 40s, we see the early 30s. In the late 50s, which is essentially a 1:1 deal, you’re wrong.” He originally reiterated the post to subscribers on X (formerly Twitter) on November 23.

“For me, this cycle is no different from any other cycle. Currently only up is possible, and soon only down will be possible. This is essentially how $BTC has always traded,” he said. continued This is part of a fresh analysis.

“I think prices are currently over-inflated. That’s 43K plus shorts.”

Markets eager for Fed pivot in FOMC countdown

Last week’s collection of US macroeconomic data reports did little to steer Bitcoin out of its narrow trading range at the time.

But that all started to change when Federal Reserve Chairman Jerome Powell took the stage and delivered what many interpreted as a sign that economic policy was about to change significantly.

This will be achieved by the Federal Reserve starting to lower interest rates. This will be a watershed moment for cryptocurrencies and risk assets, which will be among the first to benefit from increased liquidity deployment by traders currently holding cash.

As Cointelegraph reported, this Fed “pivot” had not previously been anticipated or signaled by officials until at least mid-2024, but recent forecasts have quickly brought that unofficial deadline forward. Bill Ackman, CEO and founder of hedge fund Pershing Square Capital Management, said last week that he expects a turning point in the first quarter.

“I think they’ll cut the rates. “I think they will cut rates sooner than people expect,” he told Bloomberg at the time.

Before the new year, the Federal Reserve is expected to make one more decision on interest rates, which will be completed within two weeks. Last week’s data print confirming the narrative of inflation easing was therefore a decisive contributor to that decision. The data scheduled to be released this week and next will be released within the Fed’s “blackout period” – a period during which officials are prohibited from commenting on policy.

Data from the CME Group FedWatch tool shows that markets overwhelmingly believe interest rates will remain at their current levels after the decision, although they are not yet ready for a cut.

Fed target interest rate probability chart. Source: CME Group

This week’s print includes nonfarm payrolls and other employment data at a time when the U.S. unemployment rate is near historic lows.

“This week’s employment data will have a big impact on next week’s Federal Reserve meeting. “The final month of trading in 2023,” financial commentary source The Kobeissi Letter wrote as part of its weekly summary of key macro diary dates.

Gold price surge sparks concerns over surge in U.S. liquidity

Others have pointed out that the rise of Bitcoin and cryptocurrencies is likely about more than just data.

The Fed’s reverse repo facility is declining rapidly and is injecting additional liquidity into the economy. This is probably the key variable in risk asset performance globally.

“This is money stashed overnight at the Fed to enter the economy/markets. This helps risk assets and tends to push $DXY lower.” Daan Crypto Trades wrote From the comments on the attached chart.

The US Dollar Index (DXY), which measures the strength of the USD against its major trading partner currencies, is currently showing a modest rebound after hitting a four-month low last week.

This is the 1-day chart of the US Dollar Index (DXY). Source: TradingView

Liquidity is on the radar of institutional names within the cryptocurrency industry. Among them is Dan Tapiero, founder and CEO of 10T Holdings.

The recent debacle in U.S. bonds presents a rare buying opportunity on par with the 2008 global financial crisis and the 2020 COVID-19 crash, he argued last week, again concluding that liquidity should “rush” into stocks and Bitcoin.

Charles Edwards, founder of quantitative Bitcoin and digital asset fund Capriole Investments, has already been one of those who has pointed to liquidity trends preempting the Fed’s actions. November saw the largest US monetary easing in 40 years.

As Cointelegraph reported, gold has already reacted, hitting record highs for the dollar and surging nearly 4% the day before the correction.

Others claim the behavior is unusual and expect “something big” to happen this week.

“Unless someone sells gold and does it right now, this speaks volumes,” said a popular social media commentator and trader known as Horse. suggested.

“Gold doesn’t get ripped off randomly on Sundays like this unless it has some special significance.”

XAU/USD 1-hour chart. Source: TradingView

In response, popular trader Bluntz also expressed concern about the ongoing intra-asset surge, adding that it is mainly focused on global inflation trends.

Bitcoin miners constantly increase the hash rate.

There is little stopping Bitcoin miners from their desire to halve the block subsidy in April.

Last month, the estimated hash rate hit an all-time high, passing 500 exahashes per second (EH/s) for the first time in Bitcoin history.

As December begins, this trend stops going further. The next difficulty readjustment will add approximately 1.6% to the already high score, reflecting the intensity of competition for block rewards.

This marks Bitcoin’s seventh consecutive upward correction, according to data from statistics resource BTC.com.

Bitcoin network basic overview (screenshot). Source: BTC.com

“Bitcoin hashrate is about to enter an interesting parabolic phase of this cycle as we approach the fourth and final phase of mining,” said Nick Cote, founder and CEO of digital asset marketplace SecondLane. predicted This is part of a recent X commentary.

“Sophisticated players with unlimited resources and government coordination will step on the necks of inefficient miners as the pace of deployment accelerates.”

Alex Thorn, head of company-wide research at cryptocurrency education resource Galaxy, cited the company’s “bullish case” for hash rates becoming a reality.

“This is one of the most interesting charts in the world right now,” he said. said X number of subscribers for hash rate figure.

“A picture is worth a thousand words.”

Bitcoin raw hash rate data (screenshot). Source: MiningPoolStats

Greed hits Bitcoin’s all-time high of $69,000.

The recent 19-month high has likely further fueled greed in the cryptocurrency market.

Related: Bitcoin ETF Will Drive BTC Price Up 165% in 2024 — Standard Chartered

Data from the Crypto Fear & Greed Index, a benchmark sentiment indicator, is already putting greed levels at highs not seen since November 2021, when Bitcoin hit an all-time high.

A lagging indicator, Fear & Greed, does not account for trips over $40,000 at the time of writing, but still stands at 74/100. This borders on “extreme greed.”

Cryptocurrency Fear and Greed Index (screenshot). Source: alternative.me

The index uses a variety of factors to determine the overall mood of cryptocurrency investors. Its implications serve to predict market-wide trend reversals when fear or greed reaches unsustainably high levels.

In that respect, the $69,000 high represented an anomaly. Historical precedent called for a correction to begin when the index passes 90/100. So the current bull market may still have room to run before irrational excitement takes hold, commentators have previously argued.

This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.