Breakout or 40000 Bull Trap 5 things to know about

Breakout or $40,000 Bull Trap? 5 things to know about Bitcoin this week – Cointelegraph

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Bitcoin (BTC) enters the first week of December looking better than it has since the start of 2022 – at over $40,000.

BTC price action is already pleasing bulls early in the month, with the weekly close rising above $40,000 for the first time since April last year.

Short positions are being wiped out and liquidity drained as the bull market makes its latest move on the back of macroeconomic changes and anticipation of the first spot price exchange traded fund (ETF) in the US.

Despite concerns and some predictions of a sharp price decline, Bitcoin continues to offer little respite to sellers as they continually miss out on profits or wait for an entry price that never materializes.

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

Is there more upside or is Bitcoin getting ahead of itself?

This is the question that long-time market participants will be asking in the coming days as legacy markets open up and adjust to a BTC price above $40,000.

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

Bitcoin rises above $40,000 – but a serious correction remains on the watchlist

As the month begins, Bitcoin is clearly reminding investors of “Uptober” – unwinding short positions and clearing key resistance levels.

The fun began at the end of the week when $40,000 was in sight for the first time since April last year.

Breakout or 40000 Bull Trap 5 things to know aboutBTC/USD 1-hour chart. Source: TradingView

However, the bulls there did not let up and BTC/USD continued to rise to current local highs of $41,800, data from Cointelegraph Markets Pro and TradingView confirm.

According to statistics from CoinGlass, Bitcoin wiped out over $50 million in short positions on December 4th alone – already the highest daily balance since November 15th.

1701686544 477 Breakout or 40000 Bull Trap 5 things to know aboutBTC liquidations (screenshot). Source: CoinGlass

It is perhaps understandable that many traders are calling for a continuation of the uptrend towards $50,000, with leveraged short liquidity slowly disappearing as BTC price action increases.

“Someone is still aggressively price hunting here,” popular trader Skew wrote during cover of live market movements.

“More importantly, whether the large market firm actually allows some bids to be executed or not. WHEN they are filled, they are expected to drive up the price. Obviously, $40,000 is the price for institutional players.”

Still, not everyone is so sure that the good times will last.

For popular trader Crypto Chase, current levels represent an ideal place to “catch” late long positions and drive Bitcoin lower by $10,000.

“Low 40s, then we see low 30s.” “Wrong in the low 50s, essentially a 1-for-1 trade,” he originally told X (formerly Twitter) subscribers in a post on November 23rd , which he repeated that day.

“For me, this cycle is no different from any other. Currently only up, soon only down. “This is essentially the way $BTC will always trade,” he said continuation Partially new analysis.

“I believe that the current prices are excessive. Will complement the shorts at 43K.”

Markets are excited about the Fed’s U-turn in the countdown to the FOMC

Last week’s collection of macroeconomic data reports from the US did little to move Bitcoin out of the then-tight trading range.

That began to change, however, when Federal Reserve Chairman Jerome Powell took the stage to deliver what many interpreted as a signal that economic policy was about to change significantly.

This would happen as the Fed begins to cut interest rates – a game-changer for crypto and risk assets that would be the first to benefit from increased liquidity provision from traders currently holding cash.

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

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

Before the new year, the Fed will make another interest rate decision, due in less than two weeks. Last week’s data prints, which confirmed the narrative of easing inflation, were therefore a key input in this decision – the data due to be released this week and next fall within the Fed’s “lock-in period”, in which officials are told is not allowed to comment on politics.

According to data from CME Group’s FedWatch tool, markets overwhelmingly believe that interest rates will not fall yet, but will remain at current levels after the decision.

1701686546 732 Breakout or 40000 Bull Trap 5 things to know aboutDiagram showing the Fed’s target interest rate probabilities. Source: CME Group

This week’s prints include nonfarm payrolls and other employment data at a time when U.S. unemployment rates are near historic lows.

“There’s a lot of employment data this week that will have a big impact on next week’s Fed meeting. “Last trading month for 2023,” wrote financial commentary source The Kobeissi Letter in part of its weekly macro diary roundup of key dates.

The rise in gold prices is a concern as US liquidity flows back

Others pointed out that Bitcoin and cryptocurrencies’ gains are likely due to more than just data.

The Fed’s reverse repo facility is declining rapidly, injecting additional liquidity into the economy – arguably the key variable in the performance of risk assets worldwide.

“This is money that would otherwise be stored at the Fed overnight and enter the economy/markets. This tends to help risky assets and lower the DXY dollar,” said Daan Crypto Trades wrote in the commentary to an accompanying table.

The US Dollar Index (DXY), a measure of the USD’s strength against a basket of major trading partner currencies, is currently in a slight recovery after hitting a four-month low last week.

1701686548 105 Breakout or 40000 Bull Trap 5 things to know aboutUS Dollar Index (DXY) 1-day chart. Source: TradingView

Liquidity is the focus of institutional names in the crypto space, including Dan Tapiero, founder and CEO of 10T Holdings.

The recent plunge in U.S. bonds offers 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 “flow” into stocks and Bitcoin.

Charles Edwards, founder of quantitative Bitcoin and digital asset fund Capriole Investments, was one of the observers who pointed out that liquidity trends are already pre-empting Fed action – with the largest U.S. financial easing in forty years taking place in November.

As Cointelegraph reported, gold is already reacting and hitting new dollar all-time highs, rising nearly 4% the day before the correction.

Such behavior is unusual, others argue, and assume that “something big” will happen this week.

“Unless someone is pulling out of shorting gold, that says something important,” said popular social media commentator and trader Horse recommended.

“Gold doesn’t just drop randomly on a Sunday like this unless it means something.”

1701686551 459 Breakout or 40000 Bull Trap 5 things to know aboutXAU/USD 1-hour chart. Source: TradingView

Popular trader Bluntz also expressed concern about the ongoing cross-asset rise in his response, adding that it is mainly focused on global inflation trends.

Bitcoin miners are constantly increasing the hash rate

There is little standing in the way of Bitcoin miners and their desire to protect themselves when the block subsidy is halved in April.

Last month, the estimated hash rate reached new record highs, exceeding 500 exahashes per second (EH/s) for the first time in Bitcoin history.

As December begins, the trend is going nowhere – the next difficulty readjustment will increase the already record-high value by an estimated 1.6%, reflecting the intensity of competition for block rewards.

According to data from statistics source BTC.com, this is Bitcoin’s seventh consecutive upward correction.

1701686553 630 Breakout or 40000 Bull Trap 5 things to know aboutOverview of the basics of the Bitcoin network (screenshot). Source: BTC.com

“Bitcoin hashrate will enter the fun phase of its parabolic advance this cycle as the fourth and final phase of mining lies ahead,” said Nick Cote, founder and CEO of digital asset marketplace SecondLane. predicted in part of the current X comment.

“Experienced participants with ∞ resources and government alignment will put the kibosh on inefficient miners as the staking rate increases.”

Meanwhile, Alex Thorn, head of enterprise research at crypto educational resource Galaxy, pointed to the company’s “bull case” for hash rate realization.

“This is one of the most interesting charts in the world right now,” he said told X subscribers via the hash rate numbers.

“A picture is worth a thousand words.”

1701686555 180 Breakout or 40000 Bull Trap 5 things to know aboutBitcoin raw hash rate data (screenshot). Source: MiningPoolStats

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

The recent surge to 19-month highs has likely given the crypto market greed an even greater boost.

Related: Bitcoin ETF Will Drive 165% BTC Price Surge in 2024 – Standard Chartered

Data from the Crypto Fear & Greed Index – the benchmark sentiment indicator – shows that greed has already reached a peak not seen since November 2021, when Bitcoin hit its most recent all-time high.

Fear & Greed, a lagging indicator, had not taken the $40,000 trip into account at the time of writing, but was still at 74/100 – bordering on “extreme greed.”

1701686556 226 Breakout or 40000 Bull Trap 5 things to know aboutCrypto Fear and Greed Index (screenshot). Source: Alternative.me

The index uses a basket of factors to determine overall sentiment among crypto investors. Its implications serve to predict market-wide trend reversals when either fear or greed reaches unsustainably high levels.

In this sense, the peak of $69,000 was an anomaly – historical precedent requires a correction if the index exceeds 90/100. So the current bull market may still have room to run before irrational exuberance takes hold, commentators have previously argued.

This article does not contain any investment advice or recommendations. Every investment and trading activity involves risks and readers should conduct their own research when making their decision.