GB Market Commentary 12/01/2022
by Marcus Sotiriou
Bitcoin finally bounced yesterday off of the $40k support level (previously mentioned as being so critical) as Federal Reserve Chairman Jerome Powel said, ‘we probably remain in an era of very low interest rates’ and ‘we haven’t made any decisions regarding balance sheet reduction’. As we have seen constant talk around rising interest rates and an end to QE since Powell announced plans in December, this confirmation ignited a bounce in the oversold crypto market.
Furthermore, Powell was asked if there was anything that would preclude a well-regulated privately issued stablecoin to which Powell replied “no, not at all”. Given that many worry about stablecoins, which are a crucial element to cryptocurrencies’ growth, coexisting with a digital dollar, this is very bullish news.
We saw the market move higher on the unwinding of protective positions that were placed in the case that Powell said something unexpected. As it turned out he stuck to the pre-prepared remarks that were released yesterday.
Bitcoin is not out of the woods just yet as it currently remains at resistance at $42,800 approximately and if it can reclaim this level it will signal a continuation to the upside at least in the short term. All eyes are on the US inflation data getting released today at 1.30pm UK time. If inflation data is larger than expected we may see a sell off, but if so I don’t think this will last long and that Bitcoin will push to the mid $40k region, as I suspect the market has already priced in the worst case scenario due to the persistent selling recently.
On-chain data is generally bullish and indicates that these prices could be a solid buying opportunity. Bitcoin has entered the buy zone for dormancy flow, which has only flashed 5 times in Bitcoin’s history, which all lead to incredible rallies. This indicator compares Bitcoin’s market cap to the annual value of destruction – in layman’s terms, it compares price to spending behaviour. As the percentage of people spending their Bitcoin is so low. It shows the sentiment of investors, unwilling to sell their Bitcoin at this price.