March started lower due to a revival of inflationary fears. On March 7, aggressive comments by US Federal Reserve Chairman Jerome Powell amplified market expectation for a 50 basis point hike at the upcoming March 22-23 policy rate meeting.
On March 8, the US government’s $1 billion Bitcoin (BTC) asset transfer seized from Silk Road raised fears of a sell-off. Later that same day, the largest crypto bank confirmed its collapse and planned to liquidate its crypto positions voluntarily. Events for the week sent Bitcoin to a two-week low of $20,050.
A rise in negative sentiment may prevent a rebound
The flurry of bad news and price drops caused a significant drop in CryptoQuant’s Coinbase Premium Index, which measures the difference in trading prices on Coinbase and Binance. Higher prices indicate higher 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.
On-chain analysis firm Santiment reported Fear, Doubt and Uncertainty (FUD) settles in the markets, increasing the “odds” of contrary price rebounds during this “period of disbelief”.
However, the funding rate of BTC perpetual swaps remains neutral, with no large sell-offs in the futures market. It does not show a significant negative bias to suggest the possibility of a short fit. The Fear and Greed Index also fell to two-month lows of 44, but remained well above historical rebound levels between 10 and 25. This suggests that any positive rebound is likely to be short-lived.
In addition to the negative sentiment, the on-chain data shows a positive buildup among the most critical stakeholders, miners and whales. Bitcoin miner holdings have been on the rise since early 2023, heading for a six-month high. Glassnode data also shows an increase in the number of Bitcoin wallets with more than 1,000 BTC.
The on-chain realized price of BTC, which represents the average daily dollar moving through the Bitcoin network, currently stands at $19,800. Historically, this on-chain metric has formed a crucial bullish-bearish pivot line. If prices fall below this level again, it could invalidate the gains from early 2023 and send the market back into a long-term downtrend.
The elephant in the room: Fed rate hikes
The Fed’s upcoming rate hike is the most important piece of the puzzle that traders need to figure out before placing their bets. A higher print for the Consumer Price Index on March 14 could send global markets into a risk-off environment ahead of the Fed meeting later in the month.
Related: Fed Signals Sharp March Rate Hike Due to Inflation: Here’s How Bitcoin Traders Can Prepare
Technically, BTC/USD broke below the February lows of $21,400, triggering a sell-off towards the $20,650 support level. The pair may fall back into a downtrend towards the 2022 lows if it breaks break this support. Consecutive daily closes below this level will be a strong bearish signal.
The compilation of negative news on a bearish macroeconomic environment has led to an increase in market volatility, which could likely fuel a short-term bullish bounce. However, market reaction to the CPI release and the Fed’s policy rate decision in March remain crucial to buoy traders.
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