December 6, 2022

Crypto And Bitcoin Flattens As Inflation Persists

Bitcoin and ether prices flattened in Wednesday trading as investors weighed the latest jobs data suggesting the economy isn’t finished growing.

Bitcoin’s  price slumped 0.5% on Wednesday but climbed back above the $20,000 level after slumping below earlier that day. Bitcoin had declined overnight and accelerated for several hours. 

The sharpest decline occurring during the 13:00 UTC hour, as U.S. traditional markets opened. And also the ADP’s Employment report on job creation in the private sector arrived hotter than expected. Bitcoin volume during the downturn exceeded its average volume during that time frame by 5 times.

Ethereum And U.S Crude Oil Took A Blow

Ether’s price’s also declined, as the second-largest cryptocurrency by market capitalization fell 0.95%, erasing its gains from prior two days. ETH’s biggest drop occurred during the 13:00 UTC timeframe. ETH prices are down 19% since the Merge, the Ethereum network’s conversion from a proof-of-work consensus mechanism to a proof-of-stake system on Sept. 15.

U.S. Equities: Traditional stocks declined following strong labor data, as the Dow Jones Industrial Average (DJIA). Tech-heavy Nasdaq composite and S&P 500 fell 0.14%, 0.25% and 0.20%, respectively.

Energy markets rose following OPEC’s announcement and U.S. inventory data, as WTI and Brent European crude increased 1.8% and 2%, respectively. Natural gas prices increased 1.8%.

OPEC announced a 2 million barrel per day cut in oil production.

In the U.S. crude oil inventories dropped by 1.36 million barrels versus expectations for a 2.1 million barrel increase for the week ending Sept 30. Gasoline inventories fell by 4.7 million barrels, significantly more than the expected 1.3 million barrel decrease. This turned out to be the largest decline in eight weeks.

Both developments will likely send energy prices higher, a challenging scenario given the U.S. central bank’s current priority to tame inflation.

Bitcoin And Inflation

According to the report, annual pay increased 7.8% for workers who stayed at their jobs, while wages for job changers increased 15.7%.

The news, which showed a still-hot jobs market, indicated that the economy is not slowing. Especially as much as inflation hawks had hoped to see.

Bitcoin’s prices spent much of Wednesday toggling above and below $20,000. Consequently, the largest cryptocurrency by market cap continues to trade in a tight range.

The Average True Range (ATR) for BTC has decreased 64% in 2022. ATR measures an asset’s daily range of movement. The contraction of ATR for bitcoin signals prices have gotten less volatile.

Furthermore, Bitcoin continues to fluctuate as the narrative around economic growth changes. Tuesday’s Market Wrap highlighted increased optimism for a Federal Reserve pivot to lower interest rates. This seemingly pushed risk assets (both traditional and digital) higher.

Today’s better-than-expected ADP jobs data is having the opposite effect. This is due to  the Fed additional cover to follow through on its intentions to push interest rates aggressively higher. The CME FedWatch tool continues to project another hefty 0.75-percentage-point rate hike in November.

What Bitcoin Investors Should Look Forward To

For BTC investors looking for bullish signs, on-chain analytics offer potential clues for bitcoin price expansion when volatility begins to increase.

The net position change for stablecoins on cryptocurrency exchanges has begun to increase again, and has been net positive in each of the most recent 24 days.

Often an increase in the balance of stablecoins implies additional buying pressure for an asset. Meanwhile, the increased supply of cryptocurrencies (i.e. BTC and ETH), implies increased selling pressure.

For BTC investors leaning bearishly, the current bitcoin price appears to be near its production cost.

Glassnode’s Difficulty Regression Model estimates the “cost of production” for BTC miners. Furthermore, currently it puts that at approximately $18,081, or 11% below bitcoin’s current price.

Augustine Ojeh

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