Fears of inflation cause Bitcoin to decline, but it keeps climbing above $17,000

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  • BlockFi recently filed for Chapter 11 protection, becoming the latest domino to fall in the FTX (FTT-USD) contagion saga.
  • In November, nonfarm payrolls increased by +263.0K while the unemployment rate stayed at 3.7%.
  • The employment statistics for November 2022 show a net increase of 263,000 jobs. 
  • Despite being less than in earlier months of the year, the increase is still positive, in contrast to how employment typically declines during a recession.
  • The price of bitcoin was near its 200-day average. Ether traded lower by 1.8% to $1,250, following a similar pattern.

There are now a lot of economic signs that point to relatively calm price changes in crypto markets in the short term. The rate of price growth is outpacing wage growth. So, individual investors are still wary of riskier assets. BTC/USD keeps going over the $17,000 mark, which will be a focus all weekend. With macro signals still to come, Bitcoin looked for catalysts as signs of volatility crept into low timeframes. The upcoming week appeared increasingly significant for the U.S. dollar and, by extension, for the performance of risk assets. The U.S. dollar index (DXY) was already at its lowest point in five months at the end of last week’s trading session. On December 2, DXY went up to 105.6 and went down almost all day, ending at 104.5.

Source: Glassnode

Once again, there is a negative relationship between bitcoin (BTC) and ether (ETH) and the U.S. Dollar Index (DXY). The correlation between BTC and the DXY has dropped to -0.36 from a high of 0.84 on November 19. Since July, the relationship between BTC and the DXY has always been negative. On November 9, it changed to a positive. In the month of August, the correlation between the two assets fell to a value of -0.94.
When negative correlations come back, it means that the Markets have likely reset and found a new level of price comfort. On the second point, if the price of BTC stays the same and returns to inverse correlations, this means that things that affect the U.S. dollar will also affect BTC. Investors should think about what Federal Reserve Chair Jerome Powell said on Wednesday and what will happen at the next meeting of the central bank on Dec. 14, when the fed funds rate will be decided.

When examining the behavior of whale investors with those holding at least 1,000 BTC on centralized exchanges, some of that quiet is visible on-chain. For instance, this year’s increases in whale BTC sending to exchanges between March and June and between October and November were accompanied by 50% and 14% price drops for BTC, respectively. Positions of whale nets have flattened recently. The most recent trend indicates that BTC prices will remain stable rather than trend upward.

Trading view
Source: Tradingview

Concluding Thoughts:

Recent Bitcoin market activity indicates that FTX’s insolvency may have reached its worst point. Despite the fact that prominent crypto lender BlockFi sought bankruptcy protection last week, it increased by 4%. Even though the full extent of the uncertainty hasn’t yet been priced in, there are indications that the recent barrage of negative news is having less of an impact on cryptocurrency performance. United States government bond yields have significantly decreased from their yearly highs, confirming the peak inflation thesis and the ensuing risk resurgence in the equity and currency markets. Bitcoin, on the other hand, seems to be separating from traditional markets and macroeconomic trends.

In terms of technology, we think that the billions of dollars in the trading volume provide enough proof of product-market fit to meet societal demands for decentralized currency and financial systems. Money printer go brrr is the only strategy in the Fed’s playbook to prevent economic recessions until Central Bank Digital Currencies allow for targeted stimulus, or unless Jerome Powell is okay with reviving the global economy with a great depression-like restart. The current liquidity crisis is a blip in the history of the Fed’s never-ending balance-sheet expansion. Bitcoin didn’t fall much in price when BlockFi said it was going out of business, and it’s now 4.5% higher. We believe blue-chip crypto assets that are not backed by debt still have a place in a diversified portfolio.

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