March started at a low point due to a revival of inflation fears. On March 7, hawkish comments from US Federal Reserve Chairman Jerome Powell reinforced market expectations for a 50 basis point hike at the upcoming March 22-23 interest rate meeting.
On March 8, the US government’s transfer of Bitcoin (BTC) $1 billion of assets seized from Silk Road sparked fears of a sale. Later that day, the largest crypto-friendly bank confirmed its collapse and planned to liquidate its crypto positions voluntarily. The week’s events sent Bitcoin to a two-week low of $20,050.
An increase in negative sentiment may rule out a bounce
The storm of bad news and price drops caused a significant dip in CryptoQuant’s Coinbase Premium Index, which measures the difference in trading prices on Coinbase and Binance. Higher prices indicate stronger demand in the US relative to the rest of the world. The premium fell to a two-month low on the morning of March 9 as negative news piled up.
On-chain analysis company Santiment reported fear, doubt and uncertainty (FUD) settles in the markets, increasing the “likelihood” of adversarial price increases during this “period of disbelief.”
However, the funding rate for BTC perpetual swaps is still neutral without 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 bounce levels between 10 and 25. This suggests that any positive gains are likely to be short-lived.
In addition to negative sentiment, on-chain data shows positive accumulation among the most critical stakeholders, miners and whales. The stock of Bitcoin miners has been increasing since the start of 2023, heading for a six-month peak. 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 dollars moved through the Bitcoin network, is currently at $19,800. Historically, this on-chain metric has formed a crucial bull-bear pivot line. If prices slip back below this level, it could nullify the early 2023 gains and throw the market back into a long-term bearish trend.
The elephant in the room: Big interest rate hikes
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 CPI print on March 14 could send global markets into a risk-on environment heading into the Fed meeting later this month.
Related: Fed Signals Sharp Rate Hike in March Due to Inflation — How Bitcoin Traders Can Prepare
Technically, BTC/USD broke below February’s low of $21,400, triggering wider selling towards the $20,650 support level. The pair could slide back into a bearish trend towards the 2022 lows if this support breaks. Consecutive daily closes below this level will be a strong bearish sign.
The accumulation of negative news over a bearish macroeconomic setting has led to an increase in market volatility, which is likely to spawn a short-term upward bounce. However, the market’s reaction to the CPI print and the Fed’s policy rate decision during March remains crucial for momentum traders.
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