Factors That Could Make Bitcoin Boom (or Crash) This Week
Bitcoin (BTC) is currently testing the patience of traders as it struggles to break above the $100,000 mark. The price has experienced considerable fluctuations, hovering between $90,000 and $105,000 since reaching its all-time high in mid-January.
This stalling poses challenges for traders, with some optimistic about potential upward movement while others see signs of weakness in the market. This week is crucial for Bitcoin, with five significant factors that could dramatically influence its price trajectory.
One of the significant events to consider is the potential for a short squeeze. A short squeeze occurs when traders who have shorted Bitcoin are forced to buy back their positions. This typically happens when the price starts to rise unexpectedly, creating upward pressure.
Traders are watching two key levels: if Bitcoin corrects, it could drop to $93,300, while a bullish rally could see it rise to around $99,200. Analyst CrypNuevo points out these critical levels, while trader CJ believes that a nearby ceiling exists between $102,500 and $105,000.
However, CJ cautions that there is still a chance of Bitcoin returning to $80,000 before any significant recovery occurs.
In addition to market dynamics, the Federal Reserve's decisions and macroeconomic factors are also influential this week. The release of the Federal Reserve’s minutes and new employment data in the U.S. could impact market sentiment.
Ongoing inflation concerns have diminished expectations for a rate cut in March. Current probabilities show only a 2.5% chance of a 0.25% rate cut, based on data from the CME FedWatch Tool.
This tight monetary policy may lead investors to be more hesitant towards riskier assets, including Bitcoin.
The flows of Bitcoin between spot and derivatives exchanges are presenting a worrying trend. The Inter-Exchange Flow Pulse (IFP) indicator has recently shifted into bearish territory, indicating that investor risk exposure is declining.
Historically, an increase in the IFP often precedes market peaks, but such a scenario has not been observed so far this year. Analyst JA Maartunn suggests that this shift could signal the beginning of a bearish market phase, even as some indicators remain optimistic.
Despite the overall lack of a strong bullish trend, demand for Bitcoin continues to exhibit strength. On-chain metrics reveal that the ratio of Bitcoin inflows and outflows on exchanges is maintaining a robust accumulation zone, according to analyst Darkfost.
This suggests that many investors are still accumulating Bitcoin, which may support a potential price rebound in the near future. It’s worth noting that some of these inflows may stem from transfers to exchange-traded funds (ETFs) and over-the-counter (OTC) desks.
Lastly, the market seems to be approaching a state of euphoria, as indicated by the Net Unrealized Profit/Loss (NUPL) metric for long-term holders. A NUPL reading above 0.75 traditionally points to euphoria that often comes before market tops.
Previous bull cycles have shown varying durations of euphoria, lasting anywhere from 228 days in 2021 to 450 days in 2013. If this trend continues, it might suggest that the peak of the current bull market is nearing.
In conclusion, traders must remain vigilant this week, considering these factors while navigating the complex Bitcoin market.