A Glassnode on-chain indicator of Bitcoin HODLer doom called “Reserve Risk” recently dropped to its lowest level, indicating that HODLer doom is at record levels. In the wake of the collapse of FTX, formerly one of the world’s largest centralized cryptocurrency exchanges, the Bitcoin The reserve risk indicator fell to a new all-time low of 0.000729. Since then it has recovered to around a bit above 0.0010.

According to Glassnode, Reserve Risk is “used to assess long-term holders’ confidence in relation to the price of the native currency at any given time.” Reserve Risk is “a long-term cyclical oscillator that models the relationship between the current price (incentive to sell) and investors’ long-term conviction (opportunity cost of not selling)”.

The conviction of long-term investors is epitomized by Glassnode’s “HODL Bank” Index, which represents an accumulation of unspent “opportunity cost” accrued by HODLers the longer they refuse to sell. Reserve Risk is thus defined as the Bitcoin market price divided by the HODL Bank index score.

Glassnode says that when trust is high and the price of BTC is low (meaning a low reserve risk score), the risk/reward of investing in Bitcoin is attractive Meanwhile, in the reverse scenario, when confidence is low and price is high (meaning a high risk reserve score), the risk/reward is not attractive.

According to a crypto analyst who recently commented on a number of bullish on-chain indicators, including the risk reserve indicator, “conviction among long-term Bitcoin holders can’t get any better than this.”

What does the recent risk reserve bounce mean for the BTC price?

In light of the recent rally in the price of Bitcoin, the Reserve Risk score has naturally risen. Historically, the fall of the Reserve of Risk indicator after reaching depressed levels has coincided with the start of new Bitcoin bull markets. At least, that seems to have been the case in 2020, 2019, 2015, and late 2011.

Going by history, the Risk Reserve indicates that the price of Bitcoin could see an exponential rise in the coming years. The risk reserve indicator can be added to a list of others that are also showing long-term bullish buy signals.

CryptoQuant The profit and loss (PnL) index, an index constructed from three on-chain indicators related to the profitability of the Bitcoin market, recently crossed back above its 365-day simple moving average (SMA) after a period prolonged below him. “The CQ PnL Index has given a definitive buy signal for BTC,” CryptoQuant notes, before stating that “the index crossover has implied the start of bull markets in past cycles.”

Meanwhile, as discussed in a recent article, a growing confluence of indicators (looking at price model eight, network utilization, market profitability and balance of wealth signals) tracked on Glassnode’s “Bitcoin Bear Recovery” dashboard suggest that Bitcoin could be in the early stages recovery from a bear market.

Elsewhere, analysis of Bitcoin’s long-term market cycles also suggests that the world’s largest cryptocurrency by market capitalization could be in the early stages of a nearly three-year bull market. According to analysis by crypto-focused Twitter account @CryptoHornHairs, Bitcoin is exactly following the path of a roughly four-year market cycle that has been perfectly adhered to for more than eight years.

Furthermore, a widely followed Bitcoin price model tells a similar story. According to Bitcoin’s Stock-to-Flow pricing model, Bitcoin’s market cycle is approximately four years, with prices typically bottoming out somewhere near the middle of the four-year gap between “due downs.” halving”: Bitcoin’s halving is a four-year phenomenon. where the mining reward is halved, which slows down the inflation rate of Bitcoin. Past price history suggests that Bitcoin’s next big rise will come after the next halving in 2024.

But First… Macro Risks

Optimism that Bitcoin has bottomed out has grown significantly since the start of the year, especially amid Bitcoin’s roughly 40% price rally. But traders have a big week of macro events, many of which have the potential to trigger short-term volatility, to navigate before declaring victory that the new bull market is here.

The Fed issues its latest policy announcement on Wednesday before the ECB and BoE on Thursday, and before the release of the official US employment report for January on Friday. This week’s US ISM PMI and JOLT data will also be worth watching, as will earnings from US tech giants.

Will the Fed spoil the bull party?

The main event will, of course, be the Fed meeting. The US central bank is widely expected to raise interest by another 25bp on Wednesday, taking the fed funds target range to 4.50-4.75%. . Therefore, a 25bp rate hike will not be a surprise and should not move markets at all. What matters to markets is the interest rate outlook.

More specifically, how many more rate hikes will there be? And how long will interest rates remain at the restrictive terminal rate? Markets seem to be considering that after Wednesday’s hike, the Fed will only raise interest rates by 25bp one more time (in March) and then start cutting interest rates in late 2023.

That seems to be based on the bet that 1) US inflation (wage and price pressures) will continue to fall towards the Fed’s 2.0% target and 2) the US will enter a recession in the late this year, which means the Fed will have the space. and the desire to start lowering interest rates to support the economy.

But strategists warn that markets are underestimating the Fed’s determination to raise interest rates and keep them at tightening levels for longer. According to the popular pseudonymous macro-focused Twitter account The Carter, Goldman Sachs’ US Financial Conditions Index (FCI) is now at its lowest level since September 2022.

The Carter thinks that, as a result, “there will be blood on February 1st”, with Fed Chairman Jerome Powell to “reset financial conditions by aggressively tackling rate cuts (i.e. rate cut bets)… head on”. That would hit crypto hard, at least in the short term (a possible 10% drop?).

Other strategists agree. The head of treasury at crypto asset management firm Wave Financial, Nauman Sheikh, told crypto press that “there is a strong possibility that at the press conference, Powell will be more aggressive and tighten financial conditions again.” “For that reason, we could see a healthy short-term correction in cryptocurrencies and all risk assets,” he added.

Meanwhile, Pepperstone’s head of research Chris Weston has warned that financial conditions have eased enough that Fed Chairman Jerome Powell wants to label the degree of easing “unwarranted.” Weston believes this would push risk assets like tech stocks and cryptocurrencies lower.

But as pointed out in a recent article, Bitcoin options markets continue to show a bias towards investor positioning in anticipation of further upside in the short to medium term. Maybe they are about to be wrong.