Observing bitcoin price behavior at the beginning of a new season: main factors and trends analysis
As the traders and markets were preparing for the Federal Open Market Committee (FOMC) meeting results, Bitcoin (BTC) went back above $23,000. Many were speculating that the U.S. Federal Reserve would increase rates by 25 basis points, taking current rates to 4.75%. Nevertheless, the crypto market was quite calm over the period prior to the scheduled FOMC meeting with Bitcoin maintaining its $23,000 level.
As it was expected, the Fed indeed raised the target range for the federal funds rate by 25 basis points to 4.5–4.75 percent, which brought the interest rate to a 15-year high.
Fed Chairman Jerome Powell, was speaking as usual in the post-Fed policy announcement press conference. Risk assets, including stocks, surged as Powell acknowledged that the central bank has made progress in its fight against inflation and said that the “disinflation process has started”. The comment by Powell came shortly after the Fed announced a widely expected 25 bps hike to the Federal Funds target range to 4.50–4.75%. Bitcoin was last trading close to $23,700s, then went up around 2.7%, making one more leap up closer to 4.0% versus its prior post-Fed lows in the $22,700s.
Not so long ago, a venture capital investor and former CEO at BrightScope and Digital Assets Data, Mike Alfred shared a bullish Bitcoin prediction in his Twitter post. He claimed that Bitcoin was set to hit a massive bull run at $150,000. However, the investor further added that if Bitcoin had to move towards the said target, the currency would first hit $23,133 and maintain its pace above this area.
As we see now, it is already happening.
In a similar manner, Ari Paul, the founder of a crypto hedge fund BlockTower Capital, predicted a bullish trend by Bitcoin in near future. According to Paul, Bitcoin might jump at $100,000 by the end of 2024. One of the reasons that Paul believes will push Bitcoin’s price towards the said target is the large fund inflows from financial institutions like Grayscale Bitcoin Trust. Paul further claims that if the crypto market turns down its current bullish trend and enters a bearish cycle like it happened in 2021, Bitcoin hitting $100,000 will be on a lower side.
Besides, everyone agreed that the decision by the first FOMC meeting in 2023 on interest rate hike would significantly affect the path taken by Bitcoin from that point. Apparently, the crypto market is now destined for a further bull run.
One more factor that can positively affect the price of BTC is Bitcoin’s mining difficulty level which rose 4.68% on Sunday, hitting an all-time high, as the networks’ hashrate also continued to increase.
As the price of Bitcoin experienced a significant surge recently, so did its network difficulty. Blockchain.com’s stats showed that difficulty had been increasing consistently over the past few weeks. As for the 1st of February, the network difficulty was very close to 40.0T, and the current level is the highest in more than a year.
The number of hashes needed to mine a block is directly proportional to the difficulty level, which means each participating miner needs to perform 39.03 trillion hashes in order to mine a block at that level. Right now, the mining difficulty is at 37.59 trillion, and after a predicted jump, it’s expected to be around 39.03 trillion.
The remarkable ascent of Bitcoin has been a topic of critical importance in the broader cryptocurrency community. Not surprisingly, the price increase seen by other coins and tokens followed the main coin’s price increase.
The current Bitcoin hashrate indicates an increase in computing power. Bitcoin mining difficulty, which determines how much computing power is required to verify blocks on the blockchain in exchange for Bitcoins rewards, changes roughly every two weeks. After the hashrate dropped in December 2022, observed data revealed a surge in January 2023, indicating a higher monthly contribution.
Adding extra computing power (hash rate) to the Bitcoin network increases the network’s difficulty, making it harder for miners to solve the cryptographic puzzle needed to mine a block. In order to keep the average time to mine a block at 10 minutes, regardless of fluctuations in the hash rate, the difficulty adjusts itself accordingly. As a result, the Bitcoin protocol’s mining difficulty rises. With BTC’s price higher, a lot more hashrate has been dedicated to the blockchain.
Two network difficulty increases during the month impacted overall BTC productivity. On average, 15.7 BTC were mined per day, equivalent to about $362,700 per day and approximately $11.2 million for the month based on a BTC price of $23,100 on January 31, 2023.
Bitcoin gained in price after the mining difficulty reached its maximum level. It increased by over 37% from the start of its surge to its present price.
According to the Relative Strength Index, the market was in a bull run in the time period. In addition, despite the daily timeframe’s zigzag movement, a support level was being formed for the price of Bitcoin. However, the line revealed later that it had slightly descended from the overbought region.
The network becomes more secure as the hash rate and difficulty increase because it becomes harder for an attacker to interfere with the network. On the other hand, it can take more time to mine a block, which might cause higher costs and worse profitability.