Crypto market cap goes above $1 trillion for the first time since November 2022

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  • Bitcoin is up almost 40% from its low in November.
  • The S&P 500 index (SPX) has also done well so far this year, but its rise of about 4% has been more modest.
  • In January, the US dollar index (DXY) continued to fall and fell by more than 1%.
  • Expectations that the U.S. Federal Reserve might scale back its rate increases as inflation slows down may have contributed to the shift in sentiment toward risky assets.
  • The price of Ether (ETH) is being rejected around the $1,650 price level, but it’s a good sign that the bulls haven’t given the bears any ground.
  • In addition, the tech-heavy Nasdaq 100 index rose 5.1% between January 20 and January 23, supported by investors’ optimism regarding China’s reopening to foreign trade.
  • Gas prices in Europe were able to decline back to pre-war levels owing to a mild winter.

On November 21st, 2022, the price of Bitcoin (BTC-USD) hit a significant low of 15,479 USD, capping a brutal 14-month bear market. The Grayscale Bitcoin Trust hit its low point on that day at 7.46 USD. Prices have since fluctuated sideways for about six weeks. However, Bitcoin has soared over the past two weeks, reaching almost 21,600 USD as of yesterday. A regime change appears to have taken place. Since the beginning of November, Bitcoin had hardly responded to the constant stream of bad news coming from the collapsing cryptocurrency industry. 

However, many altcoins experienced new lows. At the same time, public opinion was severely damaged and Bitcoin was loathed. The stellar rally quickly raised prices from around 16,00 USD to around 23,000 USD. Everybody who did not invest is now trying to catch the rally. Furthermore, those who have even shorted Bitcoin are now hoping for a sizable decline. However, despite the substantial increase, market participants’ attitudes are still pessimistic. This stage of the market can be best described as “Disbelief.”

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2022 was one of the most challenging stock market years ever as a result of high inflation numbers and the ensuing sharp increase in interest rates, balance sheet reductions by central banks, the war in Ukraine, and the burst of the China bubble. However, following a month-long sell-off in almost all asset classes, there has been a gradual yet significant recovery in stock markets since mid-October. A significant rise in the price of precious metals was also aided by the depreciating US dollar. Top executives, however, are in a very negative frame of mind.

China has the upper hand because it is expertly promoting the de-dollarization of international trade flows. In the past two months, the US dollar’s value against the Chinese renminbi (CNY) has fallen by about 10%. Currently, while American growth is slowing, Chinese growth is accelerating. In any case, despite the short-term gains, the West’s monetary and fiscal policy situation continues to be incredibly difficult, and the fundamental outlook is not good. The most likely outcome is stagflation. The FED and ECB’s restrictive monetary policy is not yet about to come to an end. But in the course of this year, we anticipate a reversal. This would be excellent news in the medium to long term for assets like Bitcoin and precious metals and equities.

Bitcoin: Unspent Transaction Outputs (UTXOs)

It is frequently stated that Unspent Transaction Outputs (UTXOs) are the basic building blocks of Bitcoin. Since the Bitcoin network is based on an accounting model based on unspent outputs, they can be used to figure out how the network is doing and how big it is getting. Changes in the total amount of money settled through UTXOs, the number of them, and the percentage of them that are making money or losing money can show where the network is and where it is going.

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Analysis of Bitcoin UTXOs showed that the number of UTXOs has been growing steadily since 2018. Even though prices have gone up and down, the number of outputs that haven’t been spent keeps growing. This is happening even though the bear market is still going on. Positive growth in the UTXO set shows that more people are using the network, while negative values show that fewer people are using the network.

Glassnode data showed that the number of Bitcoin UTXOs reached an all-time high in the first few days of January when there were more than 136 million UTXOs. The fact that the UTXO set keeps growing shows that the network has been growing even though the market has been down. In the past, crypto winters have been times when the network doesn’t grow because low prices and uncertainty make many people leave the network. On the other hand, during bull markets, the network has grown quickly in the past because more people are trading, which makes more people use the network overall.

Bitcoin Price Analysis:

Bitcoin has surpassed the 200-SMA on the daily time frame chart (Simple Moving Average). Therefore, a pullback could start between about 23,000 USD and 24,500 USD. Overall, the weekly chart is unmistakably bullish and points to further price increases in Q1-2203 to levels above $25,000 per unit. The initial pullback should be absorbed by the support region between 18,000 and 19,500 USD. Given the brutal 14-month bear market and the availability of numerous instruments and derivatives for trading Bitcoin, there were probably more short sellers than ever at the November low. These short sellers, who are currently steadily going further in debt, will soon turn into buyers and could easily drive Bitcoin prices up to 25,000 USD. Since the beginning of the bear market in November 2021, sentiment has significantly improved for the first time. The Crypto Fear & Greed Index is currently showing a fairly balanced or neutral sentiment at 52 points.

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Concluding Thoughts:

There are excellent chances for a significant recovery in Bitcoin given the positive start to the year. All weak hands and unprofitable or suspect companies and players ought to have been eliminated from the market by the sharp correction (-77.5%) that has occurred since November 2021. Although they are not completely gone from the Bitcoin market, these players will most likely only reappear at much higher prices. Although the cryptocurrency rally is exciting for investors, the long-term prices of Bitcoin and other cryptocurrencies remain low. However, this rally has rekindled interest in the sector and provided a good entry point for investors looking to increase their holdings of cryptocurrencies and growth securities. Investors who want to invest in cryptocurrency equities may prefer to do so through an index-linked product like an ETF, which not only uses a rules-based methodology to eliminate more illiquid securities but also diversifies away single-stock risk.

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