Crypto news: Bitcoin is trying to maintain bullish 'pre-halving momentum'📈

The cryptocurrency market has experienced improvement in sentiment over the past week, with Bitcoin managing to climb above $21,000 and Ethereum trading near $1550. Smaller cryptocurrencies also experienced powerful increases, with many investors starting to purchase projects indirectly related to the development of artificial intelligence on the wave of news about ChatGPT. The cryptocurrencies market capitalization again rose above $1 trillion, and Bitcoin's capitalization approached the value of Visa, overtaking the capitalization of Wall Street Giant, Meta Platforms. Today, trading on Wall Street is closed due to a national holiday, and the cryptocurrency market has so far traded flat with a slight advantage for sellers - smaller cryptocurrencies are seeing the biggest declines. Polygon and Solana are higher.

• The rise in cryptocurrency prices is once again being driven by falling inflation in Europe and the US, as well as China's gradually opening economy.As a result of falling inflation, markets are beginning to see Fed rate cuts or at least a pause in the hike cycle as a matter of time because the Federal Reserve will have no reason for radical monetary policy in an environment of falling price pressures in the economy. A lot of risk has also been taken off investors by stabilizing fuel and energy prices, which has added particular animus to the bulls on European indices;
• Bitcoin has completely recovered from the declines caused by the collapse of FTX. The domino effect has stopped although it is still uncertain whether the industry is not in for another 'black swan'. Recently, the Binance exchange and the entire Digital Currency Group, including the Grayscale fund, were targets of FUD. In recent days, however, it emerged that Morgan Stanley would invest in the Grayscale Bitcoin Trust which somewhat helped improve sentiment toward GBTC and the entire DCG empire, Barry Silbert. The Binance exchange has been smoothly processing customer withdrawals although Bloomberg reported recently that its stablecoin BUSD is not always adequately backed by the dollar.
• Cryptocurrencies continue their correlation with U.S. indices and are likely to approach another spike in volatility caused by Wall Street's earnings season, which began the previous week with financial industry results. The most important technology industry results, however, are yet to come, to be presented by tech giants (we'll hear Netflix's report on Friday) and chipmakers, among others. In addition, on February 1 we will learn the Fed's decision and witness Jerome Powell's speech, commenting on the situation in the US economy, which is likely to be associated with large movements in the stock market, metals and cryptocurrencies;
• Although historically periods of recession have proven to be negative for the performance of listed companies, usually causing them to fall by 20 to 30% or so, Wall Street analysts still believe that companies will be able to improve their margins on an annualized basis in 2023. This poses a certain risk factor if it turns out that the price of falling inflation was lower revenues and margins for U.S. businesses. An additional risk factor is still the covid pandemic in China, where many citizens are heading home for the holidays which could be a catalyst for the virus to grow and herald the possible return of restrictions;
• On-chain data provided by Glassnode in recent weeks has not shown a significant increase in internal Bitcoin network activity or a definite improvement in the health of miners until at least January 9. Both of these have historically been important predictors of a new bull market cycle. Despite this, however, the on-chain data effectively predicted a spike in volatility.

The chart shows how touching the extreme low levels of volatility (blue bars) each time resulted in a sudden increase in the price of Bitcoin (the drop took place only after the reaction in 2019). When we look at the chart, we can conclude that the volatility meltdown and the reaction to it usually took place during important phases of the cycle and usually preceded a longer recovery although even this is not the norm, in 2015 the price fell again after a short-term rally. Source: Glassnode

Funding rates on Bitcoin-based derivatives platforms have surged to their highest levels in nearly 14 months. Historically, reaching such high levels has heralded an impending correction or price decline. Source: CryptoQuant 

According to Coinglass data, the cryptocurrency market experienced nearly $700 million in losses on January 13-14, when the price of BTC rose above $21,000. By far the largest liquidations were experienced by speculators on price declines of the major cryptocurrency. Source: Coinglass

The average number of daily transactions processed by the BTC network now stands at 252,000, down from more than 300,000 that were reached over the weekend - a level that was the largest since May 2021. The number, although it represented a 'mini-record,' is still meager compared to Mastercard or Visa, which process hundreds of millions of transactions per day. Source: ycharts

BTC reserves on centralized crypto exchanges have not changed decisively despite the increases, which may be a confirmation of the widespread reluctance among investors to sell their BTC because otherwise the cryptocurrency would likely flow into exchanges en masse allowing holders to make sales. Source: CryptoQuant

The Puell Multiple metric examines miners' income from mining. The Puell ratio is calculated by dividing the daily BTC issuance by the annual moving average of the daily BTC issuance value. There are periods during which more or less new BTC 'flows' into the BTC network, and many on-chain analysts' understanding of this cycle is important for understanding Bitcoin's price fluctuations. Periods when little BTC on average flowed into the market per day proved to be the most attractive places to buy for long-term investors (the broad green line). Source: Glassnode

We can see that an increase in the M2 money supply by the major central banks has historically had a positive effect on the price of Bitcoin, while a decrease in it has caused the price of the largest cryptocurrency to slide each time. Bitcoin was created after the 2008 crisis when interest rates were radically lowered by central banks in order to accelerate and facilitate the recovery from the crisis, risky assets were booming at the time, and the prevailing belief in the markets was 'the greater the risk, the greater the gain'. There is no historical data to track the behavior of the BTC price over a potentially longer period of restrictive monetary policy Source: MacroMicro

Pre-halving bullrun

Halving is a programmed event in Bitcoin's code whereby after 210,000 blocks have been mined, Bitcoin's supply is halved and the miner's reward is halved. In halving 2024, this reward will drop from 6.25 BTC per block to 3.125 BTC per block. Analysts of the cryptocurrency market, when talking about halving, always have cyclicality in mind because in previous 'cycles' BTC has met all the conditions of a halving cycle almost every time. The increases preceding the next halving usually came roughly 1 year and 3 months before the halving. The halving was always followed by a dynamic increase in the price of BTC. When it reached its apogee (usually after a year or so of halving), the price would crash and the cryptocurrency market would enter a slump only to repeat the cycle again in a few hundred days.

It has now been 979 days since the previous halving, which took place in May 2020. Historically, we can see that after roughly ⅔ of the cycle, the increases 'under the next halving' began. Source: HalvingTracker

The chart shows how in the previous two halving cycles the Bitcoin price behaved after passing 66% of the cycle (white gaps between columns). We can see that in both of these cases the price showed a clear upward trend. Source: BitcoinMagazine, BTCDirect

When we analyze all three completed halving cycles (4 years each), we notice an interesting correlation - the BTC price hit a bottom price line roughly 470 days before the next halving. If this dynamic is maintained (which is definitely not a foregone conclusion), Bitcoin will no longer fall below $15,500, and the price at the time of the next halving, in the spring of 2024, can be roughly $30,000. Source: TrackHalving

Bitcoin chart, H4 interval. We can see that the price of the major cryptocurrency has climbed above the 100- and 200-session moving average (black and red lines). RSI Indicates near overbought levels, and Bitcoin continues to react in a twin fashion to the fluctuations of the S&P 500 index, which exposes the cryptocurrency market to risks on par with the stock market, a situation that has not happened in all previous halving cycles except 2020, when cryptocurrencies experienced a rally as the risk-reward ratio rapidly improved after the Covidian crash. Source: xStation5