Crypto Market Forecast: Week of January 17th 2022

Bitcoin (BTC) and the digital asset markets bounced this week after a difficult start to the new year. BTC ended the week up ~3% while Ethereum (ETH), and Binance-coin (BNB), the 2nd and 3rd largest assets in the crypto space, are up ~7% and 16% respectively.

The price of bitcoin has traded in a tight range between US$44,000 and US$40,000 over the last 10 days. This period will have come as a relief to many investors after sharp price drops and volatility caused havoc in markets at the beginning of the year. Markets appear to be in a position where there is no new capital entering, however, most longer term investors are unwilling to sell at these price levels.

Volumes are currently paper-thin in the crypto markets. Data from Brave New Coin’s Bitcoin Liquid Index, which tracks BTC/USD trading volume from the top, trusted exchanges such as Coinbase, Kraken, and LMAX, reports that volumes in these markets are down ~84% since the start of the year. With money sitting on the sidelines and investors uncertain, this period appears to be the calm before the storm. A major news event in the coming weeks may trigger sharp price movements in either direction.

One of these potential macro news events is an upcoming hearing on January 20th to be held by the United States House Committee on Energy and Commerce titled "Cleaning Up Cryptocurrency: The Energy Impacts of Blockchains." The Committee on Energy and Commerce is the oldest continuous standing committee in the U.S. House of Representatives and is chaired by Congressman Frank Pallone, Jr. (NJ-06).

The subcommittee on Oversight and Investigations will participate in the hearing and is interested in learning more about the energy consumption of blockchains, and the possibility that they may create energy consumption and environmental concerns in the future.

According to the latest Cambridge Bitcoin Electricity Consumption Index data, the USA is the largest producer of hashrate, while BTC.com lists US-based Foundry USA as the largest mining pool in the world. If American lawmakers take a negative stance on Bitcoin mining and decide it needs to be curtailed in the country, it could create short-term fundamental issues for the network which are likely to be reflected in the price of BTC.

Similarly, if the subcommittee chooses to embrace the USA’s position as the world’s leading hashrate producer because of factors like its economic contribution and its potential to encourage renewable energy consumption, prices may rise after the meeting.

In response to America’s newfound position as the leading Bitcoin mining nation in the world after China’s mining ban in the middle of 2021, the American mining industry formed the Bitcoin Mining Council, which has seen support from tech heavyweights Michael Saylor and Elon Musk.

Crypto news for the week ahead

18th January- London Hard fork on the Polygon network

The price of the MATIC token has been buoyed by the upcoming London Hard Fork on the Polygon network. Polygon is a layer 2 solution that enables faster, cheaper Ethereum transactions. London will initiate the burning of MATIC tokens generated through transactions. A burn feature can make tokens deflationary and broadly they create positive price pressure by constricting supply. The equivalent London Hard Fork was deployed on the Ethereum network in July 2021 and had a strong bullish effect on the ETH price. MATIC is up ~16% in the last 7 days.

17th-24th December- Public release of a Bitcoin Bridge on the Harmony network

Harmony is set to launch a Bitcoin Bridge this week. This will allow Harmony users to use native Bitcoin within Harmony’s DeFi ecosystem, while transaction fees and speeds will still be based on Harmony’s capabilities. Harmony’s native token, ONE, has soared in the last month rising ~73% in the month.

Top 10 Crypto Summary

It has been a strong week for large-cap crypto assets with many bouncing back to enjoy double-digit gains. ADA was the best performing asset in the top-10 following the announcement that Sundae Swap, the first leading AMM solution for the Cardano network, will launch on January 20th. AMMs like Uniswap and Pancake Swap on the Binance Smart Chain have been blockbuster solutions for creating volume and activity on their chains, and ADA backers will hope Sundae Swap has a similar effect on Cardano.

Bitcoin Price Chart

Bitcoin markets traded in a tight range last week, establishing a lower bound at ~US$40,000 and an upper bound of US$44,000, neither of which could be breached. Delphi Digital reports that on-chain data from Glassnode indicates that during the January 2022 price slump, Long term BTC holders began accumulating after an extended period of selling towards the end of last year. This could be a positive price indicator and implies confidence is returning to markets.