Bitcoin Fundamentals 'Only Up' - 5 Things to Watch in Bitcoin This Week

Bitcoin (BTC) started the week with a slow decline towards the key support level of $40,000.

After bulls had something to celebrate last week, the current environment looks like a new reality as Bitcoin battles jittery stocks, a resurgent dollar and more.

The picture is, as always, a mixed bag — while the spot price may not look like much, in reality, Bitcoin is stronger than ever, and network participants are doubling down on their long-term commitments.

Coupled with a slow decline in risk-on behavior in the derivatives market, there could be some sustainable growth in prices. Will it happen this week?

Cointelegraph presents five factors to consider for BTC/USD in the coming days.

Bitcoin tests new 50-day moving average support

After a 10-day rally, Bitcoin is now considering a resistance level that bulls haven’t crossed since mid-January.

After breaking above $45,500 late last week, things were relatively quiet over the weekend, with some lower lows still in place on the daily chart.

Weekly closes were a topic of concern on Sunday, with price action nearly in line with last weekend, ultimately disappointing - with BTC/USD recording a close just below $42,000.

However, with that comes the possibility of a short-term upside move to fill the CME futures "gap" currently above the spot price of $42,400.

“Bitcoin remains between support and resistance,” popular commentator Matthew Hyland concluded on Monday, adding that he was taking a “rest” in the face of current price action.

With support and resistance levels approaching, trader and analyst Rekt Capital meanwhile reiterated the relative weakness of BTC to reclaim support levels on a macro level.

Previously, he had identified two moving averages that needed to be reconfirmed as support levels in order for Bitcoin to try to move towards its all-time highs from November.

Closer to home, data from Cointelegraph Markets Pro and TradingView shows that after a choppy week, the 50-day moving average is starting to be challenged in the new week.

Dollar index sours sentiment on risk assets

A rising dollar may not help Bitcoin’s reversal towards $40,000.

The U.S. Dollar Currency Index (DXY) has been rallying since February 4, except for a sharp downtrend a week ago.

This usually poses problems for risk assets, and as of Monday, the US dollar index was back above 96 points.

News that the U.S. Federal Reserve may raise interest rates in March has already had a negative impact on stocks, while geopolitical tensions in Ukraine and Russia remain among the factors that have kept stocks on edge this week.

"In the past century, there have only been four years in which both stocks and bonds have had negative growth," analyst Lyn Alden also noted.

"Obviously it's early days, but so far, both stocks and bonds have delivered negative returns in 2022."

Meanwhile, oil prices continued to climb towards the $100-a-barrel mark amid the same tensions, with Brent crude futures topping $96 a barrel on Monday.

As Cointelegraph reported, oil and bitcoin remain the macro picks for the year.

Spot prices begin to trade higher than futures

During the ups and downs of the Bitcoin derivatives market, there has been some interesting activity.

As pointed out by Twitter monitors including Glassnode lead analyst Checkmate, open interest leverage has disappeared from the futures market — and with it the risk of deleveraging, or “liquidation.”

This time, however, the reduction did not come from a sweeping change to the price strike position. Instead, investors themselves choose to change their strategies.

“Bitcoin futures leverage has dropped significantly this week, from 2.0% of market cap to 1.75%,” Checkmate tweeted on Sunday with a chart showing de-risking.

“However, this is not the liquidation waterfall we all know and love. It is a result of traders choosing to close their positions, which is much healthier. I expect spot (prices) to be higher now.”

Regarding the relationship between spot and futures prices, commentator Byzantine General added that it is now possible for futures to start trading below spot prices, not above them.

He added in his post overnight that the difference between the futures basis and spot was already "quite large."

At the time of writing, futures on the Chicago Mercantile Exchange (CME) were trading at $42,000, about $200 below the spot price.

Computing Power Follows Difficulty to a Record High

It’s been a winning streak so far for Bitcoin’s network fundamentals, and this week was no exception.

Over the weekend, hashrate graphs — estimates of mining processing power — surged to new all-time highs.

While it is impossible to know the exact level of hashrate active on the Bitcoin network, hashrate estimates have shown a clear upward trend since the middle of last year, and it will take months for the ecosystem to fully offset the impact of China’s forced miner relocation .

Now, with the U.S. taking center stage in the mining industry, all parties appear to be competing.

Easier to measure is Bitcoin’s mining difficulty, which has also fully recovered after the dive given the drop in hashrate activity after China.

As of Monday, the difficulty stood at 26.69 trillion, but in addition, its next auto-adjustment will take it even higher — exceeding 27 trillion for the first time.

The adjustment will begin in about three days, with an increase of about 2.2%.

continue to hold

Bitcoin holders have a firm conviction, and while this is common sense, their resolve is clearer than ever.

As noted by the famous Twitter account PlanC, the number of wallets believed to belong to long-term holders is increasing dramatically — and the recent price movement has only fueled this trend.

Citing data from Glassnode, PlanC noted that these entities (defined as wallets with at least two significant incoming transactions and zero outgoing transactions) have now reached a nearly five-year high.

With BTC/USD back at $40,000, the last days of January seem particularly attractive for those looking to gain exposure.

The data excludes exchange addresses and addresses older than 7 years, to reduce the possibility that the target wallet contains "lost" bitcoins that the owner can no longer access.