March started on a low note due to the resurgence of inflation concerns. On March 7, hawkish comments from US Federal Reserve Chairman Jerome Powell inflated market expectations of a 50 basis point hike at the next interest rate meeting on March 22-23.
On March 8, the US government’s transfer of assets seized from the Silk Road, valued at US$1 billion, sparked fears of a sell-off. Later in the day, the largest crypto-friendly bank confirmed its collapse and plans to voluntarily liquidate its positions. The events of the week sent bitcoin down to a two-week low of $20,050.
A rise in negative sentiment may prevent a rebound
A flurry of bad news and price declines caused a significant drop in CryptoQuant’s Coinbase Token Index, which measures the difference in trading prices on Coinbase and Binance. Higher prices indicate stronger demand in the US versus the rest of the world. The premium fell to a two-month low on the morning of March 9 as the negative news piled up.
Analytics firm On-chain Santiment mentioned Fear, Doubt, and Uncertainty (FUD) stabilize the markets, increasing the “potentials” for contrasting price rebounds during this “period of disbelief.”
However, the funding rate for bitcoin perpetual swaps remains neutral, with no major liquidations 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 retracement levels between 10 to 25. This suggests that any positive spikes are likely to be short-lived.
Besides the negative sentiment, the on-chain data shows a positive buildup among the most important stakeholders, miners and whales. Bitcoin miner holdings have been on the rise since the beginning of 2023, heading for 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 BTC price, which represents the average daily dollars transferred across the Bitcoin network, is currently $19,800. Historically, this scale on the chain has formed an important pivot line for the bull bear. If prices slip below this level, it could negate the early gains of 2023 and send the market back into a long-term downtrend.
The elephant in the room: Fed rate hikes
The upcoming Fed rate hike is the most important piece of the puzzle that traders need to solve before placing their bets. A rise in CPI on March 14 could send global markets into a risk-free environment heading into the Fed’s meeting later in the month.
Related: The Fed Points To A Spike In Interest Rates In March On Inflation – Here’s How Bitcoin Traders Can Prepare
Technically, BTC/USD broke below the February lows of $21,400, which triggered a broader sell-off towards the $20,650 support. The pair could slip back into a downtrend towards its 2022 lows if this support is broken. Consecutive daily closings below this level would be a strong bearish signal.
The accumulation of negative news about the bearish macroeconomic situation has increased market volatility, which is likely to fuel a bullish bounce in the short term. However, the market’s reaction to the CPI reading and the Fed’s interest rate decision in March remains crucial for momentum traders.
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