In our weekend playbook from our last Compass on January 4th we wrote:
Bitcoin needs to consolidate within the $97.2K-$98.5K zone to stage a decisive attack on $100K. Holding this zone is crucial for maintaining bullish momentum, but equally important is breaking $100K with strength and volume. Notably, this particular rally hasn't been accompanied by significant volume, making this aspect critical to watch.
The consolidation, as well as the attack on $100K took place, albeit it was short lived, as we now see BTC trading at $97.4K. What happened?
To $100K and Back Again to $92K.
It’s the first full week of the year, and Bitcoin began by briefly trading above $100K, only to lose momentum hours later, falling back into the support range of $97.2K-$98.5K, and subsequently testing the lower part of the range at $92K.
For now, it appears that those betting on Bitcoin collapsing and revisiting the previous high of $74K (and thus filling the CME gap) have renewed hope for their bearish scenarios to materialize—a pretension exactly where the bulls want to trap the bears.
We are 10 days away from Trump’s Inauguration Day, and potentially we are kicking off the pre-Inauguration Day rally ahead of the January 20th event. The big question remains: will this rally built on speculation that President Trump acknowledges crypto on his inaugural day turn into a "buy the rumor, sell the news" event, leading to a Bitcoin correction before or during that day? Or will the price finally break out of this range, reaching a new all-time high?
Nevertheless, before reaching that pivotal moment, Bitcoin faces significant hurdles to overcome within the $92K-$100K range. The coming week, much like the current one, is packed with macroeconomic fundamentals (US Inflation Rate and PPI) that promise volatility and will likely sway investor sentiment.
From a technical standpoint, Bitcoin is well-positioned to weather the upcoming challenges. Now, it might be the bears' turn to brace for the bulls' charge.
Speedometers indicating the current state of BTC. The full dot represents the current reading and the white dot represents one week ago.
Price Momentum Degrades, Without Major Drawdown Risk.
Price momentum has deteriorated considerably due to recent price action, particularly after the dump from 102.5k and the bulls' inability to maintain the price above support levels. As we can see, we haven't seen a drop from bullish to bearish territory like this since the week in April before the halving.
Bitcoin Price Momentum.
This does not mean we will see a further deterioration of price momentum from where the indicator currently stands, as one more ingredient is needed for a decline in price momentum derived from a price capitulation. For this to happen, we need to see an increase in risk. Observe how that spike in risk to the upside coincides with a deterioration in price momentum to the downside.
In the event of a price capitulation, and we see levels of 86k or even as low as 74k, one way to calculate the price bottom would be to observe how these two indicators combine to signal a peak in risk and a bottom in price momentum.
With that said, let's look at what factors influence the determination of whether bearish pressure has ended or if there is more downhill ahead.
Bitcoin Risk Index.
We see that the Futures-to-Spot ratio remains in favor of Spot, which means there is more value and buying in Spot than speculation in futures contracts. However, this type of market position saw a rebound after hitting an annual low in December, and due to low volume and little market activity in the last two weeks of the year, this rebound was not reflected in a price improvement for traders.
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