Bitcoin staged a significant downside correction last week towards the $42,000 level, following the hawkish comments from the U.S. Federal Reserve in the March policy meeting.

The Federal Open Market Committee meeting minutes revealed that the Fed plans to reduce the balance sheet by $95 billion per month with more than one 50 basis point rate cuts over the year. 

Bitcoin also moved lower after the much anticipated announcement of Bitcoin integration with Apple Pay failed to materialize. Other bearish catalysts for BTC last week included:

  • Worsening COVID-19 outbreaks, particularly in Shanghai, where the government implemented draconian lockdowns.
  • A steep rise in the U.S. dollar index towards the psychological 100 points level.
  • China’s service sector Purchasing Managers’ Index fell to 42, underscoring that the domestic economy is softening at an alarming pace.
  • Mid-tier BTC whales (1,000 to 10,000 BTC addresses) continue to remain in sell mode.

Lightning Matters 

The CEO of Strike, a digital payments platform built for the BTC network, announced that it would integrate with Shopify and partner with payments firm Blackhawk and NCR, the world’s largest point-of-sale (POS) supplier. However, his earlier tweets hinted at an Apple Pay integration. 

While Shopify and other companies that Mallers mentioned last week do not have the same appeal as Apple Pay, this announcement is still bullish, in my opinion.

This integration translates into a quick and cheap service that will boost Lightning payment adoption by adding it as an alternative to the traditional payment system. 

Anyone with a Lightning Network wallet will be able to pay for groceries or retail shopping with immediate settlement over Lightning. It is noteworthy that credit/debit cards received the same backlash back in the day; look at the incredible usage over cash they have now. 

Additionally, the rollout of this type of technology also depends on how consumer companies and multinationals push this system now. I highly doubt this will be a quick game-changer, but it’s a significant positive step for the cryptocurrency space.

CPI Watch

On Tuesday, the U.S. labor dept will release the Consumer Price Index (CPI) for March. The report will likely steal the show in setting the tone for broader financial markets, including cryptocurrencies. 

Last month’s numbers are particularly important because it’ll be the first instance accounting for the inflationary effects of the ongoing Russia-Ukraine conflict on the U.S. economy. 

Analysts predict that the CPI percentage for March will be around 8.5%. There is also a likelihood for the figure to come in much hotter than expected—in double-digits. 

A CPI print around expected levels will likely cause a relief surge in the market. On the other hand, a higher than expected CPI print would induce a lot of volatility in Bitcoin’s price, probably to the negative side. 

There is a small chance that Bitcoin and stock markets could risk following the event due to a phenomenon known as TINA (There Is No Alternative to stocks) as people worry about losing purchasing power and lower relative yields on bonds and savings accounts. 

It’s also wise to consider the U.S. tax season, the final deadline day for which is Apr. 18. This is fast approaching, and we could well see a scenario in which many retail traders sell assets to meet their tax bill.

Important events for the week. Source: Forexlive.com

On-Chain Anomaly

The on-chain picture over the last few months indicates that retail swept Bitcoin’s potential local bottom and the rise in late March was led by super whales such as Terra Foundation Guard and MicroStrategy. 

The trend is contrary to what we’ve seen in the past. Only a few rare times, the price action proves the retail investors right. Either we’re witnessing hyperbitcoinization where adoption is increasing demand, or the market is preparing for a much larger pullback. 

The Accumulation Trend Score from Glassnode maps the activity of Bitcoin holders based on their relative holdings. Lighter colors signify retail activity, while darker ones indicate whale activity. 

The chart below reveals a lot of whale activity above $60,000 in Q4 2021, indicating that the whales were on the wrong side of the trade as the price fell during Q1 2022.

Bitcoin Accumulation Trend Score. Source: Glassnode

Interestingly enough, the super whales (Bitcoin addresses holding more than 10,000 BTC) were accumulating in March. While it’s a positive sign, the super whale holders are seldom price sensitive; their horizons for investing are much longer than the average investor. 

Notably, the price sensitive mid-tier whales (holding between 1,000 to 10,000 BTC) continued to sell since February. 

This has been a worrying signal for investors. Ideally, for the upside to continue, buyers would want this cohort to begin buying again. This weekend, the network saw a slight increase in the number of holders, but far from the optimum bullish levels.

Number of BTC addresses holding between 1,000 to 10,000 BTC. Source: Santiment.net

Bitcoin mining difficulty increased by over 4% on the last day of March 2022. The network’s hashrate dropped in the next few days, but picked up on Apr. 04, regaining the levels before the increase in difficulty. 

Overall, the miners seem comfortable with the market dynamics and there are no signs of capitulation. This is a positive sign for an uptrend.

Bitcoin hashrate. Source: blockchain.com

Weighing Opportunity Costs

What a difference a week makes in crypto. 

The main point of contention is whether the latest pullback to $41,000 is enough for the bulls or do we need to see a much deeper pullback to $37,000.

Some evidence exists on the daily chart that we could see a much deeper pullback, such as the broadening wedge pattern below, which is practically begging for a third test of the bottom trendline.

However, BTC has had significant trouble breaking the $41,000 barrier earlier. The latest pullback presents a solid buying opportunity, especially if you are clever with your stop loss placement and entry points.

A move much under $40,000, will likely target a downside towards $37,000. However, should BTC start recovering now, and break above the notable market pivot at $43,500, then some hope exists we could see a strong rebound towards resistance at $48,300.

BTC/USD Daily price chart. Source: Trading View

ETH’s Sellers Hold $3,600 Resistance

For some time now, I have been calling ETH/USD pair’s test of the $3,500 to $3,600 level for as a crucial technical confluence level. It is a “must test or must pass zone.” Now that ETH got rejected from that area, it is naturally heading lower. 

There are two likely scenarios for ETH, depending on whether you’re bullish or bearish. 

Buyers will be looking for a quick drop under $3,000 to buy back for another test towards the $3,600 level. Stops will probably need to be under the $2,450 level to give the trade a fair chance of working. The target will likely be around $4,500. 

On the other hand, if sellers believe the $3,600 retest was final and conclusive, they will target a full-on assault towards $1,800, with a break of $2,500 yearly support.

ETH/USD Daily price chart. Source: Trading View

Crypto Total Market Capitalization

Like Bitcoin and Ethereum, the crypto total market cap chart alludes to two possible scenarios.

Firstly, a positive sign for buyers is that the BTC price held firm above the resistance-turned-support from the triangle pattern (see chart below). It indicated that bears had their chance, and bulls won the day. 

This hints that the worst is likely over soon, and the latest dip comes as a buying opportunity.

On the other hand, a bearish scenario would test the rising trendline slightly lower than the top trendline of the triangle. 

Should the total market capitalization break below the final trendline towards the $1.7 trillion level. This is where things really become tense and probably align with BTC $37,000.

Crypto Total Market Cap Daily price chart. Source: Trading View

Recap and a Plug

This week, rising COVID-19 cases in China and the upcoming U.S. CPI report will be the significant macro risks to the cryptocurrency market. If BTC can get past these events unscathed, the short to medium-term prospects look bright.

Also, we need to see whales with 1,000 to 10,000 BTC filling their bags. This cohort of whales has retracted buying activity since February.

BTC needs to hold the $41,000 to $40,000 support zone to keep the quick rebound to $48,300 theory alive and well on the technical front. A move below $40,000 would make things look dicey for BTC buyers.

And finally, a notable plug for all PRO BTC Trader and SIMETRI subscribers. SIMETRI’s Head of Research, Anton Tarasov, will be my special guest in my usual War Room webinar this week. Anton will be discussing SIMETRI’s top ten cryptocurrency picks right now. Please come along; it should be a good one!