March started low due to resurgence of inflation fears. On March 7, hawkish comments from US Federal Reserve chairman Jerome Powell boosted market expectations of a 50 basis point hike at the upcoming policy rate meeting from March 22 to March 23.
On March 8, the US government’s $1 billion Bitcoin (BTC) transfer of assets seized from Silk Road sparked fears of a sell-off. Later the same day, the largest crypto-friendly bank confirmed its collapse and plans to voluntarily liquidate its crypto positions. The week’s events sent Bitcoin prices to a two-week low of $20,050.
A spike in negative sentiment can prevent a bounce
The flurry of bad news and falling prices led to a drop in the Coinbase CryptoQuant premium index, which measures the difference in trading prices on Coinbase and Binance. Higher prices indicate stronger demand in the US than in the rest of the world. The premium fell to a two-month low on the morning of March 9 as negative news continued.
On-chain analytics company, Santiment, reported fear, doubt and uncertainty (FUD) located in the market, increasing the “possibility” of contrarian price bounces during this “period of disbelief.”
However, the funding level for BTC perpetual swaps is still neutral, with no major liquidation in the futures market. It does not show a significant negative bias to suggest the possibility of a short squeeze. The Fear and Greed Index also fell in two months to 44 but remains above the historical bounce level between 10 and 25. This suggests that the positive rally may not last long.
In addition to negative sentiment, on-chain data shows an accumulation of positivity among the most critical stakeholders, miners and whales. Bitcoin mining holdings have been on the rise since the start of 2023, as they hit a six-month peak. Glassnode data also shows an increase in the number of Bitcoin wallets by more than 1,000 BTC.
The On-chain Realized Price of BTC, which represents the average dollar per day moved through the Bitcoin network, currently sits at $19,800. Historically, this on-chain metric has created an important bull-bear pivot line. If the price falls below this level, it could reverse the early 2023 gains and throw the market back into a long-term bearish trend.
The elephant in the room: the Fed’s rate hike
The Fed’s impending rate hike is the most important piece of the puzzle traders need to figure out before placing their bets. A higher CPI print on March 14 could send global markets into a risk-free environment leading up to 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 the February low below $21,400, prompting further selling towards the $20,650 support level. The pair could return to the bear trend towards the 2022 lows if this support is broken. A sustained daily close below this level would be a strong bearish sign.
The compilation of negative news over a bearish macroeconomic setting has led to an increase in market volatility, which may lead to a short-term upward bounce. However, the market’s reaction to the CPI print and the Fed’s policy rate decision in March remain important for momentum traders.
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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.