"The Last Week of a Bear Market Rally" - 5 Things to Know About Bitcoin This Week

Bitcoin enters the new week with a bang after posting its highest weekly close since mid-June — can the good times last?

After a turbulent weekend, BTC/USD managed to limit losses late in the weekend to close solidly higher.

In what could be the last "quiet" week of the summer and the absence of major Fed-related macro market drivers, the bulls have plenty of time.

Bitcoin’s fundamentals remain strong and it is set to raise its mining difficulty for the second time in a row in the coming days.

There were also encouraging signs in the derivatives market, with rising price levels coupled with positive data sentiment.

So, the question for holders now is how strong this rally is and whether it's just a bullish pushback in a broader bear market.

Cointelegraph has come up with five factors that could influence prices this week, helping to determine Bitcoin's next move.

Bitcoin embraces volatility after multi-week high close

At around $24,300, the weekly close on August 14 was BTC/USD’s best in two months.

The weekly chart shows that after the lows in June, Bitcoin has made a steady upward move, with a gain of 4.8% last week and a total increase of $1,100.

It's an impressive run for 2022, and overnight, on the first Wall Street session of the week, Bitcoin's rally sparked some volatility, with BTC/USD continuing to hit $25,200 on the exchange, before hitting $25,200 on exchanges. A clear reversal below the weekly closing level.

BTC/USD 1-week candle chart (Bitstamp) Source: TradingView

Such moves have been characteristic of recent days, leading traders to continue to proceed with caution in the shorter term, with few surprises.

"A new week kicks off and so far bears step in, retesting some key levels," popular trading account Crypto Tony summed up in part in his latest Twitter update for the day.

"Again, we should see an interesting week for price action. That's always been the case on shorter time frames."

According to on-chain monitoring resource Material Indicators, if the unpredictability continues to come, the possibility of a downside is clear.

On a longer-term basis, however, another trader and analyst, Rekt Capital, reacted calmly to BTC price action.

He said that if the spot price is below $25,000, one should invest in Bitcoin using dollar-cost averaging (DCA) — buying a fixed amount of Bitcoin each set period — until the next block in 2024. The block reward halving event occurs.

"To be successful in crypto, you need a dollar cost averaging strategy, an investment thesis, a vision, and patience," he told Twitter followers over the weekend.

"My DCA strategy is below $25,000. My theory is based on the 2024 halving event, and the vision is to see a bull market peak within a year after the halving. Right now I'm just being patient."

The macro situation is still on the "tip of the knife"

After last week's U.S. inflation report, the next five sessions look relatively quiet from a macro perspective.

The Fed is quiet and only unexpected events in Europe or Asia will affect market performance.

However, the chances of cryptocurrencies continuing to respond knee-jerk to macro triggers other than inflation may not be as strong as many believe, according to a popular analyst.

In the latest market update for his trading suite Decentrader, Filbfilb noted a broadly diminishing correlation between BTC and what he calls "traditional markets."

"Bitcoin has a high correlation with traditional markets, as you can see in the chart below, the S&P 500 in white and the Nasdaq in blue, yet all losses in traditional markets have been recouped since reaching the most recent bottom , Bitcoin is not keeping up," he wrote next to a comparison chart.

BTC/USD vs. Nasdaq mini futures vs. S&P 500 mini futures Source: TradingView

Filbfilb added that since the low of $17,600 in June, Bitcoin has not in fact rebounded as strongly as its previous correlation dictated, and he believes that the spot price should be above $30,000.

The reason is the collapse of Terra LUNA and Celsius, which when combined with inflation concerns and the Fed's reaction creates a perfect storm.

“What hasn’t changed is that Bitcoin’s movements are subject to the Fed’s inflation-fighting policies. The latest example was better-than-expected inflation data released last Wednesday, which sent Bitcoin and stocks sharply higher,” continued Filbfilb.

"After that, CPI data and subsequent monetary policy decisions will continue to be the most important factors in determining what happens next."

Geopolitical factors including the Russia-Ukraine conflict, tensions over Taiwan and a looming European energy crisis provide further risk factors. As a result, the macro market situation remains on the "tip of a knife," Filbfilb concluded.

Meanwhile, news of a rate cut by the People's Bank of China bucked the trend of the day.

"July's economic data was pretty shocking," Raymond Yeung, Greater China economist at Australia and New Zealand Banking Group Ltd., told Bloomberg.

"Authorities need to provide support across the board, from housing to COVID-19 policies, to stop the economy from falling further."

Moskovski Capital CEO Lex Moskovski also predicted that all central banks will eventually lower interest rates, not raise them.

"They're all going to convert," he responded.

Healthy Funding Rates Although Price Will Hit $25,000

Note the impact of the current spot price action on trading habits, while at the same time it appears that conditions may still be favorable for further upside.

When analyzing the derivatives market, Philip Swift, creator of Decentrader and founder of data resource Look Into Bitcoin, highlighted negative funding rates.

This shows that traders are increasingly convinced that the downside is coming, but that modestly negative funding rates are actually often the basis for further gains. This is because the market is anticipating the downside and is not overly betting on the realization of gains, allowing shorts to be "squeezed" by more savvy investors.

Bitcoin, and the entire crypto market, have a habit of doing the exact opposite of what most people expect.

“Interesting to see negative funding rates at times in the recent upside of BTC,” Swift commented, uploading a chart showing similar price action in the past.

BTC/USD Funding Rate Annotation Chart Source: Philip Swift/Twitter

Data from analytics resource Coinlass also shows the extent of negative funding rates relative to the weeks following the June spot price low.

Source of BTC Funding Rate Chart: Coinglass

Mining difficulty will be raised for the second time in a row

At the same time, this is a slow recovery rather than a race to the top for the fundamentals of the Bitcoin network.

The latest data from data resource BTC.com shows that miner activity is gradually returning to historical levels.

Mining difficulty will increase for the second time in a row in an upcoming automatic adjustment this week after months of declines.

While modest, the 0.9% forecast suggests that competition among miners is intensifying, and that rising prices are a reprieve from the strain on the bitcoin ecosystem this year.

Meanwhile, estimates of hashrate — an expression describing mining processing power — remain below 200 EH/s per second.

An overview of Bitcoin network fundamentals (screenshot) Source: BTC.com

Crypto Fear and Greed Index Hits 4-Month High

A two-month high in bitcoin spot price action may look good, but that's not the only aspect of the market recouping some serious losses this week.

Judging by the sentiment indicator "Crypto Fear and Greed Index," crypto market participants are less "fearful" than at any time since early April.

The latest data shows that the index, which creates a normalized score from a basket of sentiment factors, has recouped all losses from the Terra LUNA debacle and other events.

Over the weekend, the index hit 47/100, its best performance since April 6, before falling to 45/100 on the day.

While this reflects "fear" as an overriding market force, the figure is a far cry from the record "extreme fear" set in 2022. The index hit a low this year in mid-June, when it read just 6/100.

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