After reaching a high of more than $23,300 in 2023, Bitcoin is undervalued today. Was the rally a bull trap and what will it take for BTC to regain its bullish momentum?

The bullish momentum that propelled bitcoin forward

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After reaching a high of $23,048 in 2023, on January 25, the price appears to have fallen to an intraday low of $22,300. This pause in bullish momentum appears to be tied to lower earnings expectations from big tech companies and the Federal Open Market Committee (FOMC) of the Federal Reserve

The bitcoin price contraction follows a market-wide decline, and analysts fear that the crypto market could face significant risk from the FOMC’s decision.

Let’s take a closer look at the factors affecting Bitcoin price today

Stock well on weak earnings expectations
In recent corporate earnings reports, top companies such as Microsoft (MSFT) revised their revenue estimates due to interest rate increases and caused stocks and bitcoin prices to fall as Cointelgraph reported that the price of bitcoin is closely linked to equities and the stock market -Investors have previously expressed strong concerns about a possible slowdown in the U.S. economy

Bitcoin Correlation. Source: Currency Metrics
While some analysts believe the current price of bitcoin represents an opportunity for generational buying at current levels, others believe the U.S. market may not recover from its current price.

Bitcoin prices are responding to consensus market expectations that weak earnings are affecting big tech companies like Microsoft, Alphabet, Salesforce and Tesla. On Jan. 25, Microsoft was down 4%, while the rest were down 3%.

In addition to continued layoffs at Big Tech, inflation is severely hampering the company’s earnings, which could weigh on the Fed’s FOMC decision. According to John Butters, senior earnings analyst at FactSet:

“Higher costs are likely to have a negative impact on net profit margins. Producer prices rose 6.2% in December. Again, although the number has been declining in recent months, it has exceeded 6.0% (year-over-year) for 21 consecutive months Last earnings season, 402 companies in the S&P 500 cited “inflation,” which is 10, in their third-quarter earnings calls Raising prices to offset higher costs for companies that are the third-highest number in more than a year could be more difficult as S&P 500 revenues in Q4 2020 (3.2%) report the lowest growth in Q4 2020 (3.2%)”.

S&P 500 profit margin. Source: FactSet
Technology companies aren’t the only ones struggling with tight profit margins. Although bitcoin miners have shown signs of recovery recently, headwinds from the earnings season could put pressure on razor thin BTC profit margins.

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Rising interest rates in the U.S. and abroad are weighing heavily on bitcoin prices
On Jan. 12, inflation in the Consumer Price Index (CPI) fell 0.1%, but Federal Reserve Chairman Powell still wants overall inflation to reach 2%. Inflation is a decisive factor in raising interest rates. President Powell cannot pivot to an aggressive rate hike strategy to curb inflation.

The Consumer Price Index report – the most widely followed barometer of inflationary pressures in the US – is leading markets to speculate that a 0.5% interest rate hike is possible at the 1 February FOMC meeting

Rate increase probability. Source: CME Group
On the back of continued sticky inflation, some analysts believe Bitcoin is in for a cold winter and its price volatility could continue until next week’s FOMC.

BTC prices corrected and the long Bitcoin futures period ended
On January 23 and January 24, $230 million was liquidated in long positions in the bitcoin futures market. This created further pressure on the price of BTC. Bitcoin prices are negatively affected when BTC longs are liquidated without buying under pressure from trading volume.

BTC Liquidation. Source: Coinglass
As market makers and crypto-oriented firms struggle to sustain operations during bear markets, this decline is seen directly through trading declines According to Arcane Research, volume increased starting in 2023, but levels have yet to reach annual highs in 2022.

Actual BTC-USD daily volume. Source Secret Research
Related: Bitcoin Ends $1.48B in Options Friday — Will BTC Hold $22K?

The recent surge in bitcoin trading volume could have been ignited by a small squeeze. Bendick Schei, head of research at Arcane Research, inferred from the data:

“The prevailing high trading volume indicates increased interest in speculation,” he said. Although structural light pressure ignited strength, the movement supported by consistently high point volume

Source: CoinTelegraph