March started lower due to resurgence of inflation fears. On March 7, accommodative comments from United States Federal Reserve Chairman Jerome Powell raised market expectation of a 50 basis point hike in the policy rate meeting scheduled for March 22 to March 23.
On March 8, a $1 billion bitcoin (BTC) transfer of assets seized from the Silk Road by the US government sparked fears of a selloff. Later the same day, the largest crypto-friendly bank confirmed its collapse and plans to voluntarily liquidate its crypto positions. The events of the week sent bitcoin to a two-week low of $20,050.
A bounce in the downside can stop the bounce
The flurry of bad news and falling prices led to a significant drop in the cryptocurrencies’ Coinbase Premium Index, which measures the difference between trading prices on Coinbase and Binance. The higher prices indicate stronger demand in the US than in the rest of the world. On the morning of March 9, premiums fell to a two-month low due to a pile of negative news.
on-chain analytics firm Sentiment informed of Fear, doubt and uncertainty (FUD) are settling in the markets, increasing the “probabilities” of a contrarian price rally during this “period of disbelief”.
However, the funding rate for BTC perpetual swaps remains neutral, with no major liquidations in the futures market. It doesn’t show much of a downside bias to suggest the potential for a short squeeze. The Fear and Greed index also slipped to a two-month low of 44, but remained well above historic highs of 10 to 25. This shows that any positive rally is likely to be short-lived.
In addition to negative sentiment, on-chain data shows positive accumulation among the most important stakeholders, miners and whales. Bitcoin miners’ holdings have been on the rise since the start of 2023, reaching a six-month peak. Glassnode data also shows an increase in the number of bitcoin wallets holding more than 1,000 BTC.
The on-chain real price of BTC, which represents the daily dollar average moved through the bitcoin network, currently sits at $19,800. Historically, this on-chain metric has formed an important bull-bear pivot line. If the price breaks below this level, it could invalidate early 2023 gains and push the market back into a long-term bearish trend.
Elephant in the room: Fed rate hike
The Fed’s upcoming rate hike is the most important piece of the puzzle that traders need to solve before placing their bets. A higher Consumer Price Index print on March 14 could send global markets into a risk-on environment for the Fed meeting later in the month.
Connected: Fed Hints at Sharp Rate Hike in March Due to Inflation – Here’s How Bitcoin Traders Can Prepare
Technically, BTC/USD broke below the February low of $21,400, triggering a broad selloff towards the $20,650 support. If this support breaks, the pair could slide back towards 2022 lows. A sustained daily close below this level would be a strong bearish signal.
The accumulation of negative news on a bearish macroeconomic setting has increased market volatility, which could lead to a short-term upside bounce. However, market reaction to the CPI print and the Fed’s policy rate decision during March remain important for momentum traders.
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This article does not constitute investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.