US Will See New “Inflation Spike” 5 Things to Know About Bitcoin This Week

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Bitcoin (BTC) begins the first week of 2023 in an uninspiring place as volatility stays on the sidelines with traders.

After failing to budge over the Christmas and New Year holidays, BTC price action remains stuck in a tight range.

After sealing annual losses of almost 65% in 2022, Bitcoin has arguably had a classic bear market year, but for now, few are actively predicting a recovery.

The picture is complex for the average hodler, who watches macroeconomic triggers through the US Federal Reserve and the impact of economic policy on dollar strength.

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

Bitcoin Traders Fear New Lows Amid Stable Price

Bitcoin hodlers may be craving volatility, but so far BTC price action has remained markedly comatose, data from Cointelegraph Markets Pro and TradingViewshows.

It doesn’t look like the low volume Christmas trading, the quarterly and yearly close of the candles, and even the macro data printouts before that can change the status quo.

As Cointelegraph reported, Bitcoin volatility even managed to reach new all-time highs as the end of the year approached, according to the Bitcoin Historical Volatility Index (BVOL).

Bitcoin Historical Volatility Index (BVOL) 1 week candle chart. Source: Trading View

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

It takes a small pump in the resistance for everyone to turn bullish again. This same bull trap has been happening for all of 2022, but people aren’t learning, Crypto’s Il Capo explained that day.

12k is very likely. BTC/USD annotated chart. Source: Crypto’s Il Capo/Twitter

His comments accompanied a modest upward shift for Bitcoin, which rose above $16,700 for the first time in several days.

BTC/USD 1 hour candle chart (Bitstamp). Source: Trading View

They were echoed by popular trader and analyst Pentoshi, who also flagged $12,000 as a key support area for Bitcoin to revisit in terms of volume on longer timeframes.

BTC/USD annotated chart. Source: Pentoshi/Twitter

Meanwhile, fellow analyst Toni Ghinea doubled again to a low of $11,000 to $14,000 for BTC/USD.

Expecting all of these levels to be reached in 2-3 months, confirmed Twitter comment on January 1.

Michael Burry warns inflation will return

With another week to go until the US Consumer Price Index (CPI) print for December hits, the early days of January are relatively quiet when it comes to BTC macro price catalysts.

That doesn’t mean there’s nothing to watch though, as the Purchasing Managers Index (PMI) and Nonfarm Payrolls data are all due in the coming week.

The short to medium term trend remains one of lower inflation, according to CME Group’s FedWatch tool, which leaves room for maneuver for risky assets.

The Federal Reserve has yet to signal that it will redirect its interest rate hikes, despite the pace of those hikes already beginning to slow. As soon as these signals arrive, sentiment around risk should strengthen significantly.

Fed Target Rate Probability Chart. Source: CME Group

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

For Big Short investor Michael Burry, however, even this more permissive scenario is not the end of the inflation story.

Inflation peaked. But this isn’t the last spike in this cycle, he warned in a tweet on Jan. 2.

We will likely see a lower CPI, possibly negative in 2H 2023, and the US in a recession by any definition. The Fed will cut and the government will stimulate. And we will have another spike in inflation. It’s not hard.

The Fed policy results are clear for 2022 stock market performance, with the S&P 500 for example ending the year 1,000 points below most popular estimates.

As markets wait for Wall Street’s first trading day in 2023, the US Dollar Index is already struggling in what could be the first silver lining of the year for crypto assets.

The US Dollar Index (DXY) is currently threatening to drop through unchallenged support for more than six months, after which the 100 point level returns.

Markets: DXY on the verge of crashing again, 10-year yields hitting resistance, WTI crude rebounded at resistance, gold stopped at resistance, stocks spot on, Callum Thomas, founder and head of research at home Macro Research Top Down Charts, summarized in part from Twitter comments that day.

US Dollar Index (DXY) 1 week candle chart. Source: TradingView Trouble due to drop amid grim hash rate data

In the reflex world of Bitcoin fundamentals, business is business as usual at the start of the year.

Bitcoins next difficulty adjustment scheduled for January 3 will erase gains made two weeks prior, a sign that miners remain under pressure on BTC price performance.

After rising 3.27% on Dec. 19, the difficulty will drop around 3.5% this week, according to data from BTC.com, failing to seal new all-time highs.

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

The difficulty data itself provides an interesting insight into Bitcoin’s health under the hood. Despite concerns over the financial stability of miners, competition for block grants remains demonstrably high.

That said, data from late December captured a grim snapshot for the average network participant, with hash rate an estimate of overall processing power dedicated to mining hitting lows for the year.

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

The hash ribbons’ capitulation captured the lowest Bitcoin hash rate reading of 2022 as miners go bankrupt and default under great pressure from squeezed margins globally. Annotated chart of Bitcoin hash ribbons. Source: Charles Edwards/Twitter

An accompanying chart showed the Bitcoin Hash Ribbons indicator entering another capitulation zone, where miners were turning off the hash rate en masse. A similar event happened in July 2022, and another a year before that.

As Cointelegraph reported, public bitcoin mining companies also continue to feel the pressure, with Core Scientific securing a nearly $40 million interim loan from creditors including BlackRock.

BTC supply falls asleep

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

The latest on-chain data supports this theory, with BTC supply becoming increasingly inactive as speculators stay away.

According to on-chain analytics firm Glassnode, the amount of stationary supply in its portfolio over the past five to seven years has reached its highest level since January 2018.

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

This trend has been in place for much of the past year, as those who bought BTC during the last halving cycle are seeing their buy prices return.

As the supply ages, the volume of coins moving short-term also decreases, suggesting an absence of instinctive speculative trading.

BTC’s supply amount last seen three to six months ago is now at a five-year low, Glassnode confirms. The active offer three to five years ago is now at its lowest in a year.

The BTC offer was last active 3-6 months ago. Source: Glassnode/Twitter

Supply is becoming scarce again, analytical resource Stockmoney Lizards responded to similar dormancy data late last month.

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

BTC/USD annotated chart. Source: Stockmoney Lizards/TwitterSentiment in no man’s land

In a similar sign that many market participants simply don’t know how to think about the future of crypto, the sentiment is neither here nor there.

Related: Crypto Winter Won’t End In 2023, Bitcoin Advocate David Marcus

It’s a reading from the popular sentiment gauge, the Crypto Fear & Greed Index, which continues to surf in territory just above extreme fear.

A story that already characterizes much of the post-FTX collapse period, sentiment seems confused as to how serious the state of crypto really is.

Of the indexes’ five sentiment slices, only fear has lingered in recent weeks, with the last deeper trip into extreme fear occurring in late November.

As Cointelegraph explained in a dedicated guide, Fear & Greed can offer key insights into market activity based on investor behavior. In 2022, it hit lows of 6/100, a score rarely seen in the life of Bitcoins.

Despite a brutal 2022 for crypto sentiment-wise, I’ve never been more excited about the long-term industry from a fundamental perspective, nonetheless concluded Daniel Cheung, co-founder of the investment firm. Syncacy Capital, in a January 1 Twitter thread.

Crypto Fear & Greed Index (screenshot). Source: Alternative.me

The views, thoughts and opinions expressed herein are the sole authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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