High inflation failed to boost Bitcoin, the total market value of cryptocurrencies shrank by $200 billion in 7 days, and analysts remain cautiously bullish in the short term

In the past 24 hours, Bitcoin has taken an inverted "V" trend. After the inflation report showed that the US consumer price index soared to 6.8% in November, reaching a nearly 40-year high, Bitpush terminal data showed that Bitcoin briefly hit $50,000, then quickly weakened, and the trading price fell back to below $47,500. As of press time, the BTC price was around $47,600, a daily drop of 1%. It has fallen by nearly 15% in the past week, and has fallen by more than 30% compared with the historical high of $69,044.77 a month ago.

Ethereum, the second largest cryptocurrency, also fell 12% in 7 days, falling below $4,000. The altcoin market also fell. Solana, Ethereum's competitor and the fifth largest cryptocurrency by market value, fell 25% in a week. Other altcoins that suffered a heavy blow include DOT (weekly decline of 23%); Dogecoin (weekly decline of 19%); AVAX (weekly decline of 21%). In the past 7 days, the total market value of the crypto market has shrunk by more than $200 billion.

reason?

In response to the market's weak trend, analyst and trader Alex Kruger said it could be attributed to "year-end profit-taking, think about performance fees, bonuses, audits, wash sales, taxes, it just happens naturally."

Inflation has been one of the bullish factors for Bitcoin since 2020, acting as a tailwind for the market’s gains in a short period of time. In this sense, downside volatility is expected, as persistently high inflation could force the Fed to accelerate its pace of tapering.

In addition, the macroeconomic background also poses a negative factor. The Chinese real estate company Evergrande may default. The company’s failure to fulfill its debts may trigger a domino effect in the global market and cause greater downside for the price of BTC and the crypto industry.

The real date to watch is next week when the Federal Reserve discusses a new inflation measure, according to Jarvis Labs analyst Ben Lilly, who is betting on “no impact” on the market as traders price in their expectations.

Does Bitcoin still have momentum to rise?

All these background factors pose a threat to further gains, but Bitcoin can still make up for its losses. Jarvis Labs analysts believe that in the short term, as bulls regain strength after last week's crash, BTC will remain range-bound, and the current price action is a typical performance after a sharp fluctuation. In the Bitcoin futures market, the underlying asset of the open interest contract is trending downward, close to the levels of May and June, when BTC hovered near the annual opening price of $30,000.

Long-term holders will be able to benefit from this situation as the price of BTC remains at attractive levels, a situation that is likely to continue until late December 2021 and early 2022.

Ben Lilly added: "As mentioned before, this type of activity tends to occur after open interest in the futures market falls and it may be some time before we rebuild momentum. You can see that open interest is starting to move higher again a few months after the last time it was hit hard, which is a sign of increasing market confidence. Fortunately, this is a great position for anyone who wants to accumulate on a weekly basis or at the bottom of the current trading range."

A recent report from Delphi Digital highlighted a significant drop in BTC open interest (OI) on derivatives exchanges. The report noted that OI dropped by 50% following the recent market downturn as over-leveraged long positions were reduced.

Analysts say deleveraging like this is beneficial in the long run and generally "translates into higher prices" as previous bubbles and excessive exuberance are replaced with a more cautious trading environment. Delphi Digital said the sharp drop in OI over the past month may also indicate that BTC's short-term bottom may have been reached and the current sell-off may be coming to an end. Delphi Digital said: "BTC OI's 30-day consecutive decline has reached a level where the previous bottom was gradually forming (or not too far away)."

Blockware Intelligence believes that Bitcoin needs to reclaim $53,000 to turn optimistic. The analyst wrote: "Below the short-term holder cost basis (currently $53,000), unless it re-enters this level, it is not bullish. Not saying I am a 'super short', just being cautious. Happy to be bullish if it reclaims."