The month of March started on a low note due to a resurrection of inflationary fears. On March 7, hawkish comments from US Federal Reserve Chairman Jerome Powell boosted market expectations of a 50 basis point hike at the next policy rate meeting on March 22-23.
On March 8, the US government’s transfer of $1 billion in Bitcoin (BTC) assets seized from Silk Road sparked fears of a sell-off. Later that same day, the largest crypto-friendly bank confirmed its collapse and planned to voluntarily liquidate its crypto positions. The events of the week sent Bitcoin to a two-week low of $20,050.
A spike in negative sentiment can prevent a rebound
The flurry of bad news and price declines caused CryptoQuant’s Premium Coinbase Index, which measures the difference in trading price on Coinbase and Binance, to drop significantly. Higher prices indicate stronger demand in the United States compared to 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.
Santiment on-chain analytics company reported Fear, Doubt and Uncertainty (FUD) is taking hold in the markets, increasing the “probabilities” of contrarian price rallies during this “period of disbelief”.
However, the funding rate for BTC perpetual swaps is still neutral, with no major liquidations 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 slipped to a two-month low at 44, but remained well above historical rebound levels between 10 and 25. This suggests that any positive rebound is likely to be short-lived.
Besides the negative sentiment, the on-chain data shows a positive build-up among the most critical stakeholders, miners and whales. Bitcoin miner holdings have been on the rise since the start of 2023, heading for a six-month high. Glassnode data also shows an increase in the number of Bitcoin wallets with over 1,000 BTC.
The on-chain realized price of BTC, which represents the average daily dollars moved through the Bitcoin network, currently sits at $19,800. Historically, this on-chain metric has formed a crucial bullish-bear pivot line. If prices fall back below this level, it could invalidate the gains of early 2023 and push 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 traders need to solve before placing their bets. A higher CPI print on March 14 could send global markets into a risky environment ahead of 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 below the February lows of $21,400, triggering a larger sell-off towards the $20,650 support level. The pair may fall back into a downtrend towards the 2022 lows if this support breaks. Consecutive daily closes below this level will be a strong bearish sign.
The compilation of negative news amid a bearish macro backdrop has led to an increase in market volatility, which could likely fuel a bullish rally in the near term. However, the market’s reaction to the CPI release and the Fed’s key rate decision in March remains crucial for dynamic traders.
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