Bitcoin price is falling to a multi-month low, but data points to a possible short-term jump

March started off on a low due to a resurgence of inflation fears. On March 7, aggressive remarks from US Federal Reserve Chairman Jerome Powell bolstered market expectations of a 50 basis point hike at the upcoming March 22-23 policy rate meeting.

On March 8, the US government’s transfer of $1 billion Bitcoin (BTC) of seized assets from Silk Road sparked fears of a sell-off. Later the same day, the largest crypto-friendly bank confirmed its collapse and planned to voluntarily liquidate its crypto holdings. The week’s events pushed Bitcoin to a two-week low of $20,050.

A spike in negative sentiment can rule out a bounce

The spate 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.

Coinbase premium index. Source: CryptoQuant

On-chain analytics company Santiment reported fear, doubt, and uncertainty (FUD) are settling in the markets, increasing the “opportunities” of reversing price jumps during this “period of disbelief.”

However, the funding rate for perpetual BTC swaps is still neutral, with no major liquidations in the futures market. It shows no significant negative bias in suggesting 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 rallies 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. 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 by more than 1,000 BTC.

Owning one-hop BTC miner addresses. Source: Coinmetrics

BTC’s on-chain realized price, which represents the average daily dollars moved through the Bitcoin network, currently stands at $19,800. Historically, this on-chain metric has formed a crucial bull-bear pivot line. If prices drop below this level again, it could invalidate the gains made in early 2023 and return the market to a long-term bearish trend.

The elephant in the room: rate hikes by the Fed

The impending rate hike by the Fed is the most important piece of the puzzle traders need to solve before placing their bets. A higher consumer price index print on March 14 could send global markets into a risky environment ahead of the Fed’s meeting later this month.

Related: Fed Signals Sharp Rate Hike Due To Inflation In March — Here’s How Bitcoin Traders Can Prepare

Technically, BTC/USD broke below the February lows of $21,400, leading to a broader sell-off towards the $20,650 support level. The pair could slide back into a bear trend towards 2022 lows if this support breaks. Consecutive daily closes below this level will be a strong bearish sign.

BTC/USD daily price chart. Source: TradingView

The accumulation of negative news on a bearish macroeconomic environment has led to an increase in market volatility, which could likely fuel a near-term uptick. However, the market’s reaction to CPI pressures and the Fed’s policy rate decision in March remain crucial for momentum traders.

The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain any investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making a decision.






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