Last week, BTC faltered below the $17,000 level but recovered as sellers failed to gain significant influence despite a series of bearish news.

The initial drop in crypto prices was due to the news that Orthogonal Trading had defaulted on eight loans (totaling around $36 million) from a lending protocol Maple Finance. This incident is yet another in the chain of bad debt that has plagued crypto.

Furthermore, a New York-based hedge fund Fir Tree Capital Management filed a lawsuit to initiate an investigation into Grayscale Investments, one of the oldest and most prominent firms in the industry.

Next, news that CPP Investments, Canada’s biggest pension fund, stopped pursuing crypto investments did not help sentiment. Canada was one of the first countries to approve bitcoin investment products like spot-ETF. It’s a bad signal for crypto adoption among institutions.

Comments from Gary Gensler raised fears of a regulatory crackdown on crypto exchanges in the United States. Gensler said that the industry players must comply with the existing rules and guidelines or face charges. His vocabulary was derogatory and included “casino”; he even said that “most of these tokens are securities.”

Still, his comments were not bearish enough to sink prices. BTC and the rest of the crypto market rallied ahead of the Fed meeting this Wednesday.

The Fed Loop

Following the release of slightly better-than-expected CPI and PPI inflation readings, the market is confident that the Federal Reserve will only push for a 50 basis point rate hike during this week’s policy meeting.

Fed Chair Jerome Powell cemented the odds of a minor half-percent increase when he stated in his latest official appearance that a rate tightening could come as soon as this month.

This week will strongly influence the markets, as Fed officials still need to clarify whether they’ll plan to raise rates in half-percent increments or shift to smaller quarter-percent ones.

The chance of a subtle price pump followed by a subsequent sell-off is very high this week, even if Powell clearly states that smaller rate hikes are coming. 

Inflation is still high, the global economic outlook is uncertain, and the market conditions don’t fit with a widespread sustainable recovery.

Meanwhile, the word “Dead” is increasingly frequently mentioned in crypto socials. It’s usually a bullish sign as the herd looks in the wrong direction. I see a strong case for a new high above the previous spike of around $18,000 for one BTC.

However, I doubt the market can implement any meaningful price trend reversal at this stage. Far more likely is a lower-then-higher scenario. By March or April, the market could be approaching or have even reached a bottom. 

On-chain Inertia

The following is a continuation of last week’s issue of CMR that focused on the behavior of the various groups of bitcoin holders.

A quick look at the chart below will tell you that the number of BTC holders with 1-10 BTC is now reaching new all-time highs. Current buyers aren’t the smartest money, but they will likely be proven correct in the long run.

Holdings of BTC addresses with a balance between 0.001-0.01 BTC (yellow), 1-10 BTC (purple), and 1,000 to 10,000 BTC (Source: Santiment).

Next are the so-called “dumb money,” who hold the most negligible amounts of BTC. They have been dumping their coins at an alarming pace over recent weeks. The wave of FUD most likely dictates their actions, so given the circumstances, they will likely continue selling over the coming weeks.

Still, the “smart money,” accounts holding over 1,000 BTC, have been selling as well, which is a much more worthy signal than a sell-off from “dumb money.” I expect more pain for BTC and the broader crypto market if we continue seeing smart money selling into rallies.

BTC: Selling Into $18,000

I think the market will eventually move lower after pumping slightly. It would fit into the fundamentals nicely if we’d see optimism over the CPI print, the Fed’s policy statement, and inflation projections.

BTC has quietly been carving out an inverted head and shoulders pattern. At one point, I thought it could be a Wyckoff pattern, but now I don’t think it is.

The primary trading idea of the week would be gunning for some pump above the $18,000 level. Buying an early week price dip and selling around $18,000 would be the best outcome.

Selling above $18,000 also looks very attractive. But I might discuss that idea next week.

BTC/USD four-hour chart (Source: TradingView).

ETH: A Temporary Weakness

We’re most likely going to see ETH taking a stab toward the $1,350 to $1,400 zone this week. Ethereum has looked strangely muted over recent weeks and does not look well-bid.

I still think the bottom for ETH isn’t in yet. ETH/USD is a leading crypto pair in terms of market sentiment. If you’re bullish on the market, you should be on Ethereum.

But currently, ETH looks weak, and I believe any rally will ultimately terminate and reverse before the end of the year.

ETH/USD four-hour chart (Source: TradingView).

DOT: Underloved is Good

Polkadot has been beaten down badly this year. It wasn’t so long ago that many people were expecting DOT/USD to move toward $100.00. Today DOT is back to its ICO price.

DOT has a chance to rise sharply this week as funding data shows that DOT/USD is one of the most heavily shorted pairs. If the crypto market rises, I wouldn’t be surprised by an ample counter move higher on DOT.

I would expect a little in terms of upside traction. However, I like the idea of Polkadot being one of the week’s best performers as it is wildly oversold, under-loved, and shorted.

DOT/USD four-hour chart (Source: TradingView).

Market Thesis

The main trading idea for the week is for the entire market to eventually rise after we get the CPI reading and the Fed meeting out of the way. It makes sense on many levels for a pre-Christmas pump to be on the horizon.

If the market fails to rise this week, then I would say we will most likely see a death spiral toward the $14,000 support zone for BTC.

If we get an up move this week, I don’t think the up move will stick around long. The point at which I am wrong would be a daily price close above $19,600. 

I am convinced that the new lows are coming in early 2023 for Bitcoin, and I think the following market lows will be a significant buying opportunity. The main point of contention is whether we see $18,000+ and then a sell-off or dump from current levels.