There are cautious celebrations as Bitcoin appears to avoid a drop back into the recent trading range as inflation and the dollar create major points of interest. Today, Bitcoin is in a fighting mood as the weekly close seemed to have supported the bulls’ cause and wiped out many weeks of downside. Can the momentum push Bitcoin higher?

After it challenged $42,000 over the weekend, there was a critical sense of optimism as higher levels remain in play. February 6 saw a fresh push, with the overnight progress attacking $43,000 before consolidation kicked in.

With today’s Wall Street open expected to deliver more of the turbulence in big tech stocks seen in the past week. The environment for crypto traders is an interesting one in February. With its considerable positive correlation, Bitcoin is therefore sensitive to the moves up and down, but the equities refuse to move unanimously in the same direction.

While seeking guidance, the hodlers still remember January’s lows, and these are also fresh in the minds of analysts who have not refuted the possibility of returning to $30,000.

With a bit of a week of reckoning for its latest gains coming up, here is what may impact the bitcoin market and some of the forces at play that may help shape the Bitcoin price action in the next few days.

Bitcoin Avoids A Major Breakdown

The weekend bears were no match for Bitcoin’s newfound bullishness despite its normally lower volume offering some fertile ground for the “fakeouts” and “fakedowns.” $40,000 managed to hold as support and the analysts were careful to see $41,000 being established as a long-term basis moving ahead.

One analyst and trader, Pentoshi, summarized Sunday:

“Here’s how I see things. As long as $BTC holds 39k (as prev stated) then yearly open up next. Imo 80% of alts will lag, 20% will lead/follow.”

The yearly open stands at about $46,200, a price level that seems to be getting closer after Bitcoin broke through its weekend resistance level to hit some local highs of $43,070 on Bitstamp.

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BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

Another trader and analyst, Credible Crypto, thinks that the latest action may offer enough proof that Bitcoin is starting its fifth wave in a series of impulse moves going back many years.

My thoughts on $BTC dominance at this time. Long story short- $BTC outperforms during initial stages of our final 5th wave impulse, alts steal the show after that as $BTC tops, dominance makes a new all time low before this is all over. pic.twitter.com/mjklIIN444

— Credible Crypto (@CredibleCrypto) February 2, 2022

If that ends up being the case, it is possible that the altcoins will first lose the limelight to bitcoin, as is the case with classic Bull Run performances.

He explained:

“If my thesis is correct and $BTC is indeed starting its final 5th wave here, expect $BTC to steal the show, pump aggressively, alts to take an initial hit, but then rally/catch up just like we saw during the last two impulses (3-14k and 12-65k).”

On the other hand, looking to the downside, the whales in the market may hold a credible answer. Data acquired from on-chain monitoring resource Whalemap indicates that the area around $38,000 is still a considerable zone of interest for the whales, who in the past week started adding to their positions there. 

Closest on-chain supports in case #BTC retraces pic.twitter.com/gcC00DbOg7

— whalemap (@whale_map) February 6, 2022

Bitcoin at $43,000 is in the meantime the highest level since January 17, with the biggest crypto erasing over two weeks of losses in a few days.

Inflation Remains ‘Real’ Before January CPI Readout

Stocks created the ideal springboard for Bitcoin’s exit from the $30K-$40K corridor in the past week. However, ‘up only’ is hardly what may characterize the major assets. Among the big tech, the story was one of Amazon’s gains and Meta’s losses, offering a curious dichotomy that Bitcoin eventually used to its benefit.

Will the same trend continue this week? The stocks markets are not alone, as oil continues its gains and the inflationary narrative seems to be rising with it. Peter Brandt, a veteran trader, commented on Monday while eyeing U.S. bonds:

“Inflation is going kick the Fed’s _ss. Inflation is REAL. This is due to the flood of liquidity added in the past two years. $$$ abounds. The Fed is way behind the curve in raising rates. The 10-Yr Note is headed to 2.35% in the near-term and 3.0% over the next couple of years.”

He also stated that inflation remains majorly modest when compared with episodes in the past century. Nonetheless, there might be a long way still to go. In the meantime, Pentoshi forecast an oil price of over $100 incoming. He tweeted:

“Oil looks like it’s going to barrel over $100 at this rate. 20% increase in the first 5 weeks of the year, 13% in January. If you loved inflation before, you’ll love it when Oil is over $100. Consumer goods numbers go up.”

Today’s Wall Street open might therefore offer either a validation of BTC’s gains or throw the entire party into jeopardy once again. At the time of publication, futures are pointing downwards after the S&P 500’s best week of 2022.

In the meantime, data shows that Bitcoin’s NASDAQ correlation is slowly receding.

Bitcoin's 1D correlation to the Nasdaq is starting to fall from historically high levels pic.twitter.com/S4Sfa8nYrX

— Will Clemente (@WClementeIII) February 7, 2022

Thursday will see the unleashing of January’s consumer price index (CPI) data that may offer more headwinds for inflation if the figures fall outside what the analysts have projected.

Will The Dollar Keep Plunging?

There is something wrong with the US dollar, even as the stocks move through early-year weakness. Earlier this month, a winning streak spanning the whole of 2021 suddenly turned bitter for the US dollar bulls, and the past week has recorded a straight downside movement for the USD currency index (DXY).

After it passed 97 for the first time in more than a year, DXY met with strong resistance and appears to be back below 95.6. Apart from a brief drop in mid-January, this move represents its lowest level since mid-November; just as BTC/USD was making its current $69,000 all-time highs.

While analyzing the current setup, one investor, trader, and entrepreneur Bob Loukas was skeptical. He mused last week:

“Very interesting moves in $USD. Maybe a trap? One thing is for sure, Price Action is always WAY ahead of what we think (macro/events) should be driving price.”

Bitcoin is normally inversely correlated to the DXY, and any steep return to the upside may undermine price strength easily.

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U.S. dollar currency index (DXY) 1-day candle chart. Source: TradingView

Michaël van de Poppe likewise forecasted:

“Not going to lie, but the DXY is starting to look like it wants to correct heavier.”

He also noted that the European Central Bank (ECB) postponement on interest rate hikes pressured the dollar further. Poppe argued:

“Long term -> would be a good signal for Bitcoin and risk-on assets if the DXY is showing more weakness.”

Short-Term Holders Return To Profit

Those who are seeking signs that a long-term bitcoin price bottom genuinely being in need not hunt a lot in the on-chain data space this week.

As previously noted by on-chain and cycle analytics account Root, the segment of the Bitcoin supply that is controlled by the near-term holders is starting to tick upwards after dropping to levels that coincide with macro price lows. Root commented:

“Likely the macro bottom is in.”

Currently, the spent output profit ratio (SOPR) for short-term holders the meantime saw its first meanwhile bounce above the 1 mark since Christmas last weekend.

Values surging through 1 from below indicate that near-term holders on average are starting to sell at a profit instead of a loss.

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Bitcoin short-term holder SOPR chart. Source: CryptoQuant

On that topic of profitability, nearly 25% of the bitcoin supply remains underwater, in the meantime, compared with 16.7% of the supply acquired between $30,000 and $41,500. Twitter account TXMC trades commented on the data that was acquired from on-chain analytics firm Glassnode:

“Bitcoin is a bit top heavy here, but NumberGoUp is medicine for that.”

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Bitcoin URPD annotated chart. Source: TXMC Trades/ Twitter

Sentiment Considers First Exit From ‘Fear’ Since All-Time Highs

The longer the higher BTC price lingers, the deeper the impact they will have on even the most entrenched mindsets.

The Crypto Fear & Greed Index that spent most of last month in its “extreme fear” zone seems to be on the verge of breaking out of this ‘fear’ altogether.

Such a movement might mark the Index’s first shift to the “neutral” territory since the November surge to record highs, and therefore something of a reset of sentiment in the last two-and-a-half months. For the sale of comparison, barely a week ago, the Index stood at 20/100, while the current levels are 45/100; which is more than double on its normalized scale.

Market history has shown that the key to a strong and sustainable sentiment, where traders never pile in” to buy or sell after a particular price action, is found in the measured Bitcoin price action. The slow and steady gains are what traders seem to look for to become confident that a long-term trend has formed.

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Crypto Fear & Greed Index. Source: Alternative.me

In the case of the January’s Index lows, analyst Philip Swift offered a stern warning. While comparing historical figures in the past week he noted:

“Charting Fear & Greed score against bitcoin price shows that the score can be very low at points that are not price bottoms. But it is interesting to note that extended periods of Extreme Fear (sub 25) for +3wks does tend to signal major lows.”

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Crypto Fear & Greed Index annotated chart. Source: Philip Swift/ Twitter