Bitcoin hits $45K ahead of July inflation report, but one fractal hints at looming correction

The flagship cryptocurrency hits its highest level in more than two months as inflation is expected to rise by another 0.5% in July.

Bitcoin (BTC) reached its highest level in more than two months, with just a few days remaining before the July inflation report.

The top cryptocurrency climbed 1.65% to $45,363 on Sunday, continuing the upside momentum that had already seen it jump 21.62% from its low of $37,300 on Thursday.

BTC/USD daily chart. Source: TradingView

Momentum was strong among Bitcoin rivals as well. Ether (ETH), the second-largest crypto by market capitalization, increased 29.78% from its low of $2,630 on Tuesday, crossing $3,100 on Sunday. Its gains came after Ethereum’s London hard fork went live on Thursday, which should add deflationary pressure to the supply of ETH.

July inflation report, on-chain 

On Wednesday, the United States Bureau of Labor Statistics will release July’s inflation report, with markets forecasting a 0.5% spike. The projections appear after the consumer price index (CPI) jumped to 5.4% year-over-year in June to log its biggest increase in 13 years.

Bitcoin bulls have responded positively to the recent inflation reports. They effectively guarded the cryptocurrency against falling below $30,000 after the May 19 crash. Meanwhile, their recent efforts to push the prices above $40,000 — eventually leading into a slow upside break above $45,000 — indicate strong demand for Bitcoin, which appears to be breaking out of its summer slump.

Lex Moskovski, chief investment officer of Moskovski Capital, highlighted a Glassnode chart that showed dramatic spikes in entities entering the Bitcoin network, matching the growth with the rising BTC/USD rates.

Bitcoin entities net growth chart. Source: Glassnode

“Amount of new Bitcoin entities continues to hit all-time high,” Moskovski tweeted.

Additionally, on-chain analyst Willy Woo said the ongoing Bitcoin momentum should push its prices above $50,000, citing a supply-and-demand imbalance in the market. He said that all investor cohorts were buying Bitcoin, which led to a supply shock.

Related: Here’s what traders expect now that Ethereum price is over $3,000

Woo referred to a chart he posted on July 15 when Bitcoin’s market corrected lower after having peaked at $36,675. The graph, as shown below, highlighted events of Bitcoin’s liquidity shock across all the exchanges and their relation to the prices.

Woo explained:

“Fundamentals do not predict short term price, but given enough time price discovery reverts to fundamentals. Exact value is $53.2k today, with a standard deviation band between $39.6k - $66.8k (68.5% confidence).”

Bearish fractal

However, the latest Bitcoin climb does carry risks of becoming a dead cat bounce, based on previous top-to-bottom Fibonacci retracement fractals.

Bitcoin Fib retracement from local tops to 200-week EMA. Source: TradingView

After setting up record highs, Bitcoin tends to correct toward its 200-week exponential moving average (200-week EMA; the yellow wave), where it eventually bottoms out to pursue another bullish cycle.

In the past two events, the BTC/USD exchange rate posted fake recovery rallies after testing the 23.6 Fib line as support. Those upside moves failed short of turning into big bullish momentum after facing resistance at higher Fib levels.

Related: 3 reasons why Ethereum is unlikely to flip Bitcoin any time soon

For instance, in 2019, Bitcoin rebounded by more than 50% after bouncing off from its 23.6 Fib line near $7,357. But the cryptocurrency faced extreme selling pressure near its 61.8 Fib line of $10,613. Eventually, it resumed its downtrend and crashed to as low as $3,858 in March 2020.

If the fractal repeats, Bitcoin could face extreme resistance at the 61.8 Fib level at $46,792 and correct lower to retest its 200-day EMA, which currently sits below $20,000.

Independent market commentator and trader Keith Wareing suggested that an imminent bullish crossover between Bitcoin’s two weekly moving averages is hinting at the beginning of a multi-month bull run. Dubbed as the moving average convergence divergence (MACD), the indicator was instrumental in predicting the 2020 bull run.

Bitcoin prices and MACD crossovers in recent history. Source: TradingView

“The weekly MACD is due to cross bullish on Bitcoin after tonight’s close,” opined Wareing to his Twitter followers, with the price of Bitcoin so far maintaining above $44,500 at the time of writing.

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