On-Chain Commentary
- Markets continue to price in an increasingly hawkish Fed into 2023
- Bitcoin and Ethereum continue to maintain a rangebound price posture
- Bitcoin on-chain activity has begun to heat up thanks to a burgeoning use case
Over the past few weeks, rate expectations have continued to progressively increase following a series of strong economic data and hotter than expected inflation. Markets finally began to price in the higher for longer mantra the Fed has been touting for several months. An upside surprise on rates has largely been negated. Now, the market would be surprised by anything remotely signaling a lower terminal Fed funds rate than 5.75%. Weaker economic data would likely be good news for risk assets, because it would signal a more dovish tone from the Fed. This week, a slew of employment numbers are set to be released along with Fed Chairman Powell speaking in both the Senate and the House. Additionally, liquidity estimations have continued decline as the S&P 500 appears to be fighting the Fed with any near term bullish momentum.
Meanwhile, Bitcoin, Ethereum, and other digital assets continue to hold within tight price ranges despite hawkish expectations from the Fed. Despite the slow February following a strong January, not much has changed on technicals. For Bitcoin, overhead resistance remains at the 200-weekly moving average and yearly pivot, $25,000 and $26,500, respectively. Price support sits near the middle of the multi-month range around $20,000. For Ethereum, overhead resistance remains at the range high of $1,900 with support at the range low of $1,000. Moves above resistance levels for Bitcoin would likely take a pause in the $30,000 range based on the Fibonacci extension and measured move of the current range. For Ethereum, using similar rationale, the $2,500 zone is a potential area of confluence for any move higher.
Although prices remain range bound, Bitcoin’s on-chain activity has continued to increase since the beginning of the year thanks to a new NFT use case via Ordinals. Since the beginning of the year, transactions have increased 30% and active addresses have increased 20%, once again nearing one million daily. The Ordinals protocol, which uses Taproot scripting technology implemented in November 2021, allows for the viewing, creating, and transferring inscriptions. These NFTs are fully on-chain and do not require a sidechain or separate token. This flurry of activity, as silly or innocuous as it may seem, has brought increasing attention to the Bitcoin blockchain during a lull in a market cycle. Beyond the on-chain activity bump, full nodes for the Bitcoin protocol have also reached a new all-time high. There is no economic incentive to run a Bitcoin node, but users do need a node to mint NFTs via the Ordinals protocol.
