Bitcoin’s March rally may be fading. Here’s where investors see it going from here
by James · March 25, 2023
Bitcoin held on to new highs this week and saw the biggest stock market inflows of the year, but the rally may slow, investors say. The biggest cryptocurrency by market cap ended the week higher by 3.9% at $27,887, according to Coin Metrics, despite a brief drop after the Federal Reserve meeting. Coin Metrics measures a week in crypto, which is traded 24 hours a day, from the close of the exchange on one Friday to the next. Bitcoin is up 19% in March so far. Ether, meanwhile, ended Friday at $1,764. On a weekly basis, it ended up 1.25%, and rose 8.3% for the month. “Not only has crypto outperformed other risk assets recently, but the stress in the traditional financial system has led to an increased interest in decentralized finance,” Citi said in a note this week. “We’ve seen an increase in search interest for crypto, BTC spot and futures volumes, as well as broader decentralized exchange volumes.” BTC.CM= mountain 2023-03-01 Bitcoin in March “Given this week’s dovish FOMC, interest in crypto is likely to persist as the market questions whether the Fed can contain inflation,” they added. “Bitcoin in particular benefits from ‘digital gold’ narrative.” Net inflows into Bitcoin were the biggest of the year and 8.2 times greater than the previous week, suggesting that this month’s rally was led by retail investors, Citi analyst Alkesh Shah noted in a separate report on Friday. In addition to the cues, “a rising average daily trading volume to strength indicates profit-taking,” he said, “but selling by miners, medium-term bitcoin holders (bought 6 months to 2 years ago) and holders of 10 BTC+ indicates retail-led rally may be fading.” Shah said that even if investors move to the sidelines, escalating market turmoil could lead to increased bitcoin volatility. A moment of awareness For much of the past year, bitcoin was widely seen as a risky asset, and its price had fallen along with stocks with each new Fed rate hike. However, last month’s banking crisis brought a moment of awareness to bitcoin investors that has partly fueled the recent rally. Its correlation with stocks is “crumbling,” while its correlation with gold is on the rise, Citi said. Bitcoin is “an asset that literally serves the purpose of not needing a bank,” said Joe Orsini, macro strategist and author of the “Signal vs. Noise” newsletter. “Financial and monetary policy makers were also quick to put a stop to the situation and give confidence, showing increasing willingness to spend money, a core of bitcoin’s investment mission.” Between the banking crisis and new uncertainty around Fed policy, there is a push-and-pull in the bitcoin narrative. Despite the Fed raising interest rates by another 25 basis points this week, resulting in a short sell-off in crypto, many in the market expect interest rate cuts this year, and that has sent bitcoin soaring along with gold. Both assets benefit from monetary easing, Orsini added. “While bitcoin’s rally is somewhat extended, the now 40% return off the 200-day moving average highlights the strength of the trend,” he said. “Dip has been hard to come by, and offers little opportunity to take advantage.” What the Charts Say This week, bitcoin briefly fell to the $26,000 level, almost back to the key $25,200 level chart analysts have been monitoring. Fairlead Strategies said a second close above this level this coming Sunday would indicate a confirmed breakout. “That would be a positive long-term development suggesting that a more lasting turnaround is likely underway,” Will Fairlead said. “In the short term, we expect bitcoin to continue to digest recent gains,” he added. “With resistance [of about $28,200] nearby, it’s a natural place for a break as short-term overbought conditions are resolved.” The next resistance comes at around $32,000, marking a consolidation interval from May 2022, according to Oppenheimer’s Ari Wald. “While the trend is recovering from last year’s decline , it probably won’t be a straight line higher either, and trading should remain volatile,” he said. — CNBC’s Michael Bloom contributed reporting
