On March 10th, the price of BTC experienced a dip below the $20,000 mark, which had not occurred in almost two months. This drop followed the announcement of the latest budget proposal from United States President Joe Biden and the collapse of the “crypto-bank” Silvergate.
BTC price reached a low of $19,613 before recovering slightly to hover just above the $20,000 level. Despite having a strong start to 2023, BTC faced a significant decline of up to 5% in just an hour on March 3rd, which is believed to be linked to the uncertainties surrounding Silvergate. Since then, the price of BTC has not yet shown any significant signs of recovery.
March began on a downward trend due to the re-emergence of concerns about inflation. Specifically, on March 7th, comments made by Jerome Powell, the chairman of the United States Federal Reserve (FED), added to the market’s belief that there would be a 50-basis point increase at the upcoming policy rate meeting, scheduled for March 22nd to March 23rd.
At the start of March, concerns over inflation caused a dip in the market. On March 8, the U.S. government’s transfer of $1 billion worth of Bitcoin seized from Silk Road led to fears of a potential sell-off. Later that same day, the largest crypto-friendly bank announced its collapse and plans to voluntarily liquidate its crypto positions. As a result of these events, Bitcoin hit a two-week low of $20,050.
A surge in pessimistic sentiment could hinder a potential rebound
In the wake of a spate of negative news and price drops, CryptoQuant’s Coinbase premium index – which measures the difference in trading prices on Coinbase and Binance – saw a significant decline. A higher premium reflects stronger demand for cryptocurrency in the U.S. relative to the rest of the world. As negative news continued to mount, the premium hit a two-month low on the morning of March 9.
According to on-chain analytics firm Santiment, there has been an increase in fear, doubt and uncertainty (FUD) in the markets, leading to higher chances of contrarian price bounces during this “period of disbelief.”
Despite recent market turmoil, the funding rate for BTC perpetual swaps remains neutral with no significant liquidations in the futures market, indicating no strong negative bias that could trigger a short squeeze. However, the Fear and Greed Index dropped to a two-month low of 44, but still above the historical bounce levels of 10 to 25. This suggests that any upward movements in price are likely to be temporary.
Despite the prevailing negative sentiment in the market, on-chain data reveals positive accumulation by two of the most significant stakeholders in the crypto world: miners and whales. Bitcoin miners have been steadily increasing their holdings since the beginning of 2023, with their reserves now approaching a six-month high. Additionally, there has been a notable uptick in the number of Bitcoin wallets holding over 1,000 BTC, according to Glassnode data.
The on-chain Realized Price of BTC, which indicates the average daily dollar value transferred on the Bitcoin network, is presently at $19,800. This metric has historically acted as a significant pivot line between bullish and bearish trends. Should prices drop below this level, it could nullify the early 2023 gains and lead the market back into a long-term bearish trend.
Federal Reserve interest rate increases
Traders are closely watching the Federal Reserve’s planned rate hike, as it is a key factor in their decision-making process. If the Consumer Price Index is reported higher than expected on March 14, it could lead to a risk-off environment in the global markets in the lead-up to the Federal Reserve meeting later this month.
From a technical standpoint, the BTC/USD pair has dropped below its February lows of $21,400, leading to a more significant sell-off towards the support level of $20,650. If this support level is breached, the pair may enter into a bearish trend towards the lows of 2022. The occurrence of consecutive daily closes below this level would be a strong indicator of a bearish market.
A combination of negative news and a bearish macroeconomic environment has resulted in higher market volatility, potentially leading to a short-term upward rebound. Nevertheless, the market’s response to the Consumer Price Index (CPI) report and the Federal Reserve’s policy rate decision in March will be critical for momentum traders.
