Signs that market optimism is running away with itself come ahead of the U.S. midterm elections and key economic data.
Bitcoin (BTC) starts the second week of November battling some familiar FUD — how will BTC price action react?
The largest cryptocurrency managed a weekly close just below $21,000 on Nov. 6 — an impressive multi-week high — but remains fixed in a sticky trading range.
Despite seeing highs of nearly $21,500 over the past week, there has yet to be a catalyst capable of breaking the market status quo, but the coming week has as good a chance as any of doing so.
Nov. 10 will see key United States inflation data for October released, while jobless claims and multiple speeches from Federal Reserve officials may also impact risk asset volatility.
An unexpected twist from within the crypto realm comes in the form of turmoil involving exchange FTX, Alameda Research and Binance.
Concerns over liquidity have escalated as Binance CEO, Changpeng Zhao, reveals a plan to sell off his platform’s entire stash of FTX’s proprietary token, FTT.
Bitcoin reacted in line with market sentiment overnight, but going forward, will the debacle prove any more than classic crypto FUD?
Cointelegraph takes a look at some of the major factors set to influence BTC price action in the coming days.
FTX worries disrupt weekly close
While falling into the weekly close, BTC/USD still managed to post its highest such weekly candle close since mid-September.
Data from Cointelegraph Markets Pro and TradingView shows the week to Nov. 6 being capped at $20,900 on Bitstamp.
BTC/USD 1-week candle chart (Bitstamp). Source: TradingView
With that, Bitcoin defends its trading range and avoids any noticeable break of its current paradigm — lurching between $19,000 and $22,800 since August.
While heading nearer the top of the range, the FTX news involving Binance appeared to dampen the mood significantly, ultimately costing Bitcoin the $21,000 mark.
“As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT),” Binance CEO, Changpeng Zhao (also known as “CZ”) wrote in a Twitter thread.
“Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books.”
Zhao added that divesting itself of its FTX holdings would take Binance “a few months,” acknowledging that markets could be impacted throughout.
In his own thread, Sam Bankman-Fried, CEO of FTX, meanwhile referenced what he called “unfounded rumors” regarding liquidity issues.
“We’re grateful to those who stay; and when this blows over we’ll welcome everyone else back,” he wrote in one optimistic post to followers overnight.
The market reaction has so far been less positive; a look at the top ten cryptocurrencies by market cap shows 24-hour losses on some tokens nearing 10% at the time of writing.
For Bitcoin traders, it is time to take advantage of the retracement in a week they believe should result in further upside.
“Lost lower time frame support. Nice little pullback. Will be looking to re-long when it finds it’s next support,” popular trading account IncomeSharks wrote in an update.
A separate post focused on potential cross-crypto gains.
“Total marketcap looking great on the daily. Bull or bear, I think there’s enough people still sitting on cash to push up to 1.5 trillion,” it read.
Total crypto market cap 1-day candle chart. Source: TradingView
Michaël van de Poppe, founder and CEO of trading firm Eight, also said that he would be looking for “buy the dip opportunities” across crypto in the short term.
A classic counter-perspective came from fellow trader Il Capo of Crypto, who argued that $21,500 will mark the high point in a downtrend set to continue.
“Seeing whales wanting to fill asks at 21500. A very quick scam pump to this level would be the perfect end of the party. ETH to 1700s,” part of a tweet stated.
CPI and U.S. midterms in focus
The Federal Reserve dominated the last week of October when it came to crypto-asset performance thanks to its decision to raise interest rates by another 0.75%.
As this is implemented, markets will be watching another key figure this week — Consumer Price Index (CPI) data for October.
Estimates put year-on-year inflation at 7.9%, as per economists surveyed by Bloomberg, down 0.3% versus September.
Any lower-than-expected CPI readout could be a boon for crypto and riskassets, as it notionally increases the chances of the Fed pulling back on rate hikes sooner.
Before CPI and jobless claims, however, there is the issue of the U.S. midterm elections to deal with — a potential source of volatility in and of itself.
“Personally, I am in no rush just yet to start buying,” well-known social media personality @CryptoGodJohn told followers.
“CZ vs SBF drama, Midterm elections Tuesday, CPI Thursday. This will be the biggest week of crypto that will set the tune for the end of the year.”
The rate hike announcement was something of a fake tone-setter, having sparked volatility which canceled itself out within days.
Fellow commentator Capital Hungry meanwhile warned of the impact of stronger CPI inflation:
“If US CPI this week is still high we are going to see that upside on gold reversed, USD strength back and Equities bears back in play.”
The U.S. dollar index (DXY) was making up for lost ground at the time of writing, having seen a dramatic 2% daily decline on Nov. 4.
U.S. dollar index (DXY) 1-day candle chart. Source: TradingView
Funding rates run hot
In a warning signal to bulls — and particularly late longs — Bitcoin funding rates are surging on derivatives exchanges.
As noted by Maartunn, a contributor to on-chain analytics platform CryptoQuant, funding rates are now at their highs in six months.
Funding rates are a mechanism used in perpetual contracts to keep their price close to the Bitcoin spot price.
Highly positive funding rates suggest that the market expects BTC/USD to go higher and traders are paying for the privilege to go increasingly long BTC.
The effect can be detrimental, as a price decrease ends up liquidating large numbers of overly bullish positions.
“And at this moment, Funding Rates are very high. Traders are betting on higher prices and are willing to pay a serious amount of interest,” Maartunn explained alongside CryptoQuant data.
“That doesn’t have to be bearish perse, but when price start to move against them they might be forced to get out their position or it will be liquidated.”Bitcoin funding rates annotated chart. Source: Maartunn/ Twitter
As Cointelegraph reported, last month saw record liquidations for 2022 as Bitcoin made its way to $21,000.
Maartunn added that funding was “something to keep an eye on in the coming days.”
Miners miss out on difficulty readjustment
Bitcoin’s network fundamentals remain in an interesting, if not wholly bullish state.
The latest data from on-chain monitoring resource BTC.com confirms that network difficulty decreased by 0.2% on Nov. 7 — far less than previously estimated.
Bitcoin network fundamentals overview (screenshot). Source: BTC.com
The result has implications for miners, who have seen profits squeezed even as hash rate hits new all-time highs.
A major difficulty decrease would have helped level the playing field for some, and its absence keeps up pressure on certain players.
Even Bitcoin’s largest public miners are “underperforming BTC heavily” in the current environment, Sam Rule, market analyst at UTXO Management, revealed last week.
As Cointelegraph reported, the combination of high hash rate and low miner profitability is nonetheless a potential cause for classifying Bitcoin as undervalued.
The Bitcoin Yardstick continues to edge further into its “cheap” zone this month, having seen rare lows.
Bitcoin Yardstick chart. Source: Glassnode
Sentiment gauge hits three-month high
It might not all be doom and gloom for crypto market sentiment.
Related: Buying Bitcoin ‘will quickly vanish’ when CBDCs launch — Arthur Hayes
According to the Crypto Fear & Greed Index, cold feet are getting shaken off in Bitcoin’s run to its highest since September.
Fear & Greed, which measures sentiment with a normalized score of 0-100 using a basket of factors and offers various labels — extreme greed, greed, neutral, fear and extreme fear — to categorize them, reached its highest since mid-August at the weekend.
At 40/100, the optimism proved unsustainable thanks to the market retracement into the new week, and as of Nov. 7, 33/100 is in place — firmly within the “fear” bracket.
Crypto Fear & Greed Index (screenshot). Source: Alternative.me
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