The crypto outlook for March now that the 2023 rally has faded
by Arthur · March 1, 2023
Crypto could be in for a sideways month as inflation concerns come back into focus. Bitcoin and ether are starting the new trading month on a positive note – after a relatively flat month – each up less than 1% on Wednesday. Meanwhile, the stock market extended its slide from the previous session. Their modest February gain pales in comparison to the big gain in January, but many investors still see it as a winning month. Bitcoin posted a monthly gain of 0.8% and ether rose 2.5%, while all the major stock averages posted losses for February. “Bitcoin has been the beneficiary of a flight to quality in crypto,” said Callie Cox, US investment analyst at eToro. “If you’re an equity investor, you can see bitcoin as this growth engine without obvious cash flows. But if you’re a crypto investor who’s been crushed by a dramatic selloff in an altcoin, bitcoin can be seen as this blue-chip store of value .” “It’s all relative, but from a portfolio strategy perspective, you can’t overlook the inherent risks in crypto,” she added. “We still think bitcoin can struggle in a high-inflation, high-velocity environment.” Bitcoin’s correlation with stocks has retreated in 2023. However, Katie Stockton, a chart analyst and founder of Fairlead Strategies, told CNBC earlier this week that with stocks now falling, she expects the correlation to return. Meanwhile, Rob Ginsberg, a technical analyst at Wolfe Research, noted that bitcoin and the U.S. dollar index have moved higher together, even though they usually move inversely. “It is likely that one will have to give. In the short term, our bet is that the dollar retreats,” he said on Wednesday. “It’s an interesting bond out there to say the least,” he added, noting the higher dollar and rates, deteriorating commodities and choppy stocks. “Even with the recent overbought pullback, crypto continues to hang in there and consolidate.” He also said that while it “feels like the fun is over, the charts say otherwise.” “We are buyers of this pullback and see it as a healthy response to their recent overbought ratio. If we are right and more upside lies ahead in the near term, it is hard to believe that crypto is not a big asset.” What to watch Although industry developments accounted for much of the trading action in February, the Fed’s fight against inflation remains in focus, Kruger said. He cited inflation as well as regulation and institutional adoption – two major price drivers in February – as the main catalysts in March. Bitcoin and ether suffered a brief drop of 6% and 8.5%, respectively, after US regulators came out with a series of enforcement actions against crypto companies. Long-term investors see regulation as a positive development ultimately, but it could put pressure on prices in the short term, Kruger said. “These things bring some uncertainty into the equation, and uncertainty can often be, you know, kind of negative,” he said. Cox said she has an eye on the major economic reports as well as the Fed’s next policy meeting, which begins on March 21. “As we go into March, there may continue to be this push-and-pull between high interest rates and decent economic growth,” she said. “Investors’ main concern in recent weeks has been the resurgence of rising inflation and how the Fed will respond to it. We may need to see more evidence that inflation is coming down to the Fed’s liking before we can resume it. rally we saw in January.” Passing $25,000 Although bitcoin held its ground in February, investors are unsure when to expect a rocket ship rally. Stockton and Joel Kruger, marketing strategist at LMAX Group, both emphasized $25,000 as the top level to give more meaning to the gains. It is currently trading at around $23,400, according to Coin Metrics. “While we ran across it on this last run in February, we just couldn’t determine above,” he said. “Even though we are below $25,200, there is still the possibility that this market will continue to pull back and consolidate and we are not yet ready to see the big breakout.” “Everything has been constructive and we’ve held up well, but we really need to see a weekly close above the high to start feeling really encouraged about the outlook,” he added.
