Hot inflation data – but Bitcoin is stable. What's next? Three factors speak for a continuation of the upward trend.
The Bitcoin price has been able to work its way up a bit since the lows on January 22nd. However, the $45,000 mark was the end for the time being. However, the latest inflation data from the USA, which was announced on February 10 and is currently hanging over the overall market like the sword of Damocles, is causing great uncertainty .
Inflation is running hot
A real shock was the release of the Consumer Price Index (CPI) in the US. On Thursday, February 10, this was 7.5 percent higher than in January 2021. This puts the US Federal Reserve under enormous pressure to act. At the same time, the yield curve is becoming increasingly flat. Should these invert, ie if short-term interest rates are higher than those of long-term bonds, this has been a reliable indicator of a recession in the past. The juicy thing: the last time inflation was this high, the US Federal Reserve's base rate was 11.5 percent. So the Fed's room for maneuver is extremely limited. How far the central bank will be able to raise interest rates remains to be seen. Despite this shocking news and the associated uncertainty on the markets, Bitcoin was surprisingly stable yesterday. That being said, many on-chain indicators remain bullish. In the following, three of them will be examined in more detail:
1. Bitcoin supply is declining
Let's start with a rather simple consideration. How much bitcoin is currently on the exchanges? Figure 1 shows that the share has fallen from around 17 percent to 13 percent over the year. A sign that many hodlers are increasingly transferring their coins from the exchanges to cold storages. The result: the supply of available, tradable Bitcoin is steadily declining. The figure also makes it clear that it is above all (still) rather restrained demand that is preventing a stronger bull market. However, if the trend continues and demand increases sharply, the current situation would be extremely bullish for the Bitcoin price .
Bitcoin Percent Balance
2. Spent Output Profit Ratio
The next indicator that we take a closer look at is the so-called Spent Output Profit Ratio (see Figure 2). Sounds very cumbersome, but basically it's explained quickly and easily. This expresses whether Bitcoin is being sold by investors at a profit or a loss. The on-chain analytics platform glassnodedefines the indicator as the quotient between the selling price of a bitcoin and the price paid. This threshold is represented by the horizontal line. Anything below the line means investors are dumping their bitcoin at a loss. Above means they are selling at a profit. As you can see, this indicator crossed the threshold just a few days ago. From this follows the conclusion that probably everyone who wanted to sell has already sold, i.e. those who are not interested in a long-term investment.
3. Capital inflows
An indicator that shows how strong the momentum in the market is is the so-called market realized gradient. This also provides information about the strength of the capital inflows and, so to speak, models the momentum in the market relative to the capital inflows. Figure 3 shows the 14-day gradient. According to glassnode , a positive gradient announces an expected price increase over the next 14 days. A negative gradient would mean the opposite. As can be seen from Figure 3, there has been a stronger move higher over the past few days and the indicator has jumped into positive territory. Based on this indicator, a bullish continuation in the next 14 days seems likely.
Conclusion: Good starting position for Bitcoin!
The foundation seems to have been laid for a continuation of the bull market. At least that is what the on-chain indicators considered suggest. However, pushing bitcoin price above $45,000 may need a catalyst – be it another country accepting bitcoin as payment or positive news regarding a spot ETF.
However, making an investment decision based solely on individual on-chain indicators is not advisable. Nevertheless, these can serve as a kind of reference point to roughly orientate yourself in which market cycle you are currently. Further action by the US Federal Reserve is also likely to cause greater uncertainty. This is currently moving on a narrow path between fighting inflation and preventing a possible recession. The outcome is still uncertain. In recent months, however, there has been a strong correlation between highly valued technology stocks and the crypto sector. Whether this trend was only temporary remains to be seen.
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