Bitcoin ends January with its biggest gain in 15 months, thus ending the history of the current bear market cycle. At the same time, the asset enters February with some baggage, which may negatively affect BTC's bullish prospects in the new month.
First of all, Bitcoin ended January on a bearish note, forming a bearish engulfing pattern on January 30th. On the last day of the month, the bulls failed to regain the initiative, and the formation of a weak green candle raised even more questions about the viability of the bullish trend.
The cryptocurrency has been continuously moving upward throughout January, practically without interruption for local corrections. Most of the key resistance levels were taken in 1–2 days, which provoked the emergence of several disturbing factors.
The first is the technical overbought of the cryptocurrency, which was reflected in all key indicators of BTC. At some point, on-chain metrics stopped keeping up with the rise in the price of Bitcoin, which once again confirmed that the asset was overbought and provoked another alarm signal.
A sentiment that is dangerous for a bullish trend began to form in the market. More and more retail investors have changed their profile to an upward movement, which, at some point, will lead to an imbalance of shorts/longs, and Bitcoin quotes will begin to storm due to increased volatility and price manipulation.
Bitcoin continues to trade near the $23k level, but the asset is clearly at a crossroads, and we will soon find out if BTC will continue to rise or break for a corrective move. The Fed meeting could be the trigger to resolve the situation.
There is 99% expectation in the market that the Fed will begin to curtail the policy of raising the key rate and raise the indicator by only 0.25%. For the market, this is positive news, indicating the imminent completion of the rate hike cycle.
However, leading technical metrics indicate that there is no prospect of realizing the bullish momentum of Bitcoin. In addition, the latest data on U.S. GDP and the labor market make it clear that the U.S. economy is withstanding the test of a rate hike.
At the same time, we have already noted that PCE, the Fed's key inflation indicator, is still above forecasts. The combination of these factors may provoke the expected rate hike of 0.25% and an ambiguous, if not alarming, statement by Fed officials.
Over the current week, trading volumes in the Bitcoin market have significantly decreased. This is partly due to the local overbought of the asset and a sharp change in market sentiment. The additional fuel, which was the short positions of the skeptics of BTC growth, is gradually fading, and soon, the market will react only to news events.
This is the key reason why Bitcoin needs a decline. Further growth at current volumes will lead to a false breakdown of one of the resistance levels and a painful fall in the quotes of the digital asset. We have reached the point where the bulls cannot continue the bullish movement, as they did a week ago, and the sellers are gradually gaining volume.
In such a situation, a correction is almost inevitable, but extremely favorable for the further upward movement of the cryptocurrency. Its depth will largely depend on the movement of Bitcoin's "partner"—the S&P 500 index. If the asset continues to hold the $3,900–$4,000 range, then the cryptocurrency will be able to maintain the $22k level.
In the short term, BTC technical metrics point to continued sideways movement. In the previous weeks, this was necessary for the accumulation of short positions, which were subsequently knocked out by updating the local high.
In the current situation, we should expect another attempt to gain a foothold above the $22.9k–$23.4k range, which will lead to a deeper price drop. The need for a corrective movement does not cancel the medium-term plans for BTC to reach the $27k–$28k area.
Bitcoin is gradually approaching the beginning of the correction phase, which has many derivatives. Most likely, the Fed meeting will be a trigger for the bears to finally seize the initiative and launch a corrective movement.
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