Bitcoin is starting the first week of its new halving epoch strong, with the price inching closer to $70,000. After a period of volatility and a drop to six-week lows, the market is questioning whether the worst is behind for Bitcoin. Historically, halvings lead to a price decline before a significant recovery, but this usually takes place over several months, not days or weeks. This halving cycle has been unique, with Bitcoin reaching a new all-time high before the halving event. As miners adapt to the new reality, anything is possible in 2024 as Bitcoin faces geopolitical and macroeconomic challenges.
Traders are closely watching liquidity levels after the halving. Currently, there is a large block of ask liquidity above the spot price that could prevent a price surge. Analysts speculate that this liquidity may have been put in place by institutions to prevent a rapid increase in price before traditional financial markets open. Bitcoin has been eating through some of this liquidity, but the market is expecting volatility in the coming days.
Market participants are analyzing how Bitcoin will react following the completion of the block subsidy halving. Analysts have identified different price phases that typically occur after halvings. While Bitcoin has followed these phases to some extent this year, there have been deviations, such as reaching an all-time high before the halving. Currently, Bitcoin is in a re-accumulation phase, consolidating around the halving. Analysts believe this consolidation could be a springboard for long-term gains.
This week, U.S. macroeconomic data, including GDP and jobless claims, will be released, with the PCE Index being closely watched as an indicator of inflation. The Federal Reserve’s approach to economic policy will be influenced by these data prints. Other central banks in Europe and the UK are expected to begin a rate-cut cycle before the Fed, adding to market volatility. The Fear & Greed Index for U.S. equities has shifted from “greed” to “extreme fear” in a short period, which could affect Bitcoin’s correlation to equities.
Bitcoin’s transaction fees have been high since the halving, reaching nearly $200 at one point. Despite the reduction in block subsidy, miners have been earning significant revenue due to high transaction fees. This shift represents a new paradigm for Bitcoin, where the cost of electricity per mined block is higher than the spot price. Analysts expect Bitcoin to rise above its electrical cost due to price increases, unprofitable miners shutting down, and sustained high fees.
After a period of decline, crypto sentiment has turned positive again. The Crypto Fear & Greed Index is approaching the “extreme greed” zone, indicating increased optimism in the market. This shift in sentiment, along with a reset in trader positioning, could lead to a broader market rebound. Funding rates and open interest have declined, providing an opportunity for a market recovery.
Extreme greed in the market? Yeah, that’s just a sign that things are about to go downhill. Brace yourselves.
I highly doubt that miners adapting to the new reality will result in anything positive. Bitcoin is facing too many challenges.