Bitcoin price falls to a multi-month low, but data points to a possible short-term bounce
March started off low due to a revival of inflation fears. On March 7, hawkish comments from US Federal Reserve Chairman Jerome Powell reinforced the market’s expectation of a 50 basis point hike in the upcoming policy rate meeting on March 22-23.
On March 8, the US government’s transfer of $1 billion in Bitcoin (BTC) of assets seized from Silk Road sparked fears of a sell-off. Later that day, the largest crypto-friendly bank confirmed its collapse and planned to liquidate its crypto positions voluntarily. The week’s events sent Bitcoin to a two-week low of $20,050.
An increase in negative sentiment can rule out a bounce
The flurry of bad news and price drops caused a significant drop in CryptoQuant’s Coinbase Premium Index, which measures the difference in trading prices on Coinbase and Binance. Higher prices indicate stronger demand in the US compared to the rest of the world. The premium fell to a two-month low on the morning of March 9 as negative news piled up.
On-chain research firm Santiment reported fear, doubt and uncertainty (FUD) settles in the markets, increasing the “probabilities” of contrarian price jumps during this “period of disbelief.”
However, the funding rate for BTC perpetual swaps remains neutral, with no major disruptions in the futures market. It does not show significant negative bias to suggest the possibility of a short squeeze. The fear and greed index also fell to a two-month low of 44, but remained well above historical bounce levels between 10 and 25. This suggests that any positive gains are likely to be short-lived.
Besides negative sentiment, on-chain data shows positive accumulation among the most critical stakeholders, miners and whales. The stock of Bitcoin miners has been on the rise since the start of 2023, heading for a six-month high. Glassnode data also shows an increase in the number of Bitcoin wallets by more than 1000 BTC.
The realized price of BTC on-chain, which represents the average daily dollar moved through the Bitcoin network, is currently at $19,800. Historically, this on-chain metric has formed a crucial bull-bear pivot line. If prices fall back below this level, it could negate the early 2023 gains and throw the market back into a long-term bearish trend.
The elephant in the room: Fed interest rate hikes
The Fed’s upcoming rate hike is the most important piece of the puzzle that traders must solve before placing their bets. A higher consumer price index print on March 14 could send global markets into a risk-on environment heading into the Fed meeting later in the month.
Related: Fed Signals Sharp Rate Hike in March Due to Inflation — Here’s How Bitcoin Traders Can Prepare
Technically, BTC/USD broke below the February lows of $21,400, triggering wider selling towards the $20,650 support level. The pair could slide back into a bearish trend towards the 2022 lows if this support breaks. Subsequent daily bars below this level would be a strong bearish sign.
The accumulation of negative news over a bearish macroeconomic environment has led to an increase in market volatility, which is likely to lead to a short-term upside bounce. However, the market’s reaction to the CPI printout and the Fed’s policy rate decision during March remain crucial for momentum traders.
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