10 Mar 2023 Samantha McLauren
Bitcoin’s Price Is Falling Dragging The Rest Of The Crypto Sector With It
The month of March got off to a bumpy start due to the resurgence of inflationary concerns. The market had expected a 50-basis point increase in the policy rate at the upcoming policy rate meeting on March 22-23, but Jerome Powell's hawkish remarks on March 7 caused a stir. According to Powell, the latest economic data have been stronger than anticipated, indicating that interest rates may be higher than previously estimated. He also noted that if faster tightening is needed, the rate hikes may be increased.
The transfer of $1 billion in assets confiscated from Silk Road in Bitcoin by US authorities on March 8 was also expected to cause a sell-off. Later that day, the largest crypto-friendly bank declared bankruptcy and announced plans to liquidate its crypto holdings. As a result, Bitcoin fell to a two-week low of $20,050. The Coinbase premium index by CryptoQuant, which measures trade prices on Coinbase, also saw a substantial decline due to negative headlines and price drops.
Source: CryptoQuant
When fear, doubt, and uncertainty (FUD) spread throughout the markets, on-chain analytics company Santiment noted an increase in the "probabilities" of contrarian price rebounds during this "period of disbelief."
However, there have been no significant liquidations in the futures market, and the funding rate for BTC perpetual swaps remains neutral. The Fear and Greed Index fell to a two-month low of 44 but continued to rise beyond previous rebound levels of 10 to 25, indicating that any upward movements are likely to be transient.
Despite the negative sentiment, on-chain data reveals positive accumulation among miners and whales. Since the beginning of 2023, Bitcoin miners' holdings have been increasing and are on track to reach a six-month high. Additionally, Glassnode statistics show an increase in the number of Bitcoin wallets holding more than 1,000 BTC.
The on-chain Realized Price of BTC, which measures the average daily dollar volume via the Bitcoin network, is currently $19,800. This indicator has historically been a significant bull-bear pivot line, and prices may invalidate the early 2023 gains and return the market to a long-term negative trend if they fall below this level.
The Fed's impending rate rise is the most critical piece of information that traders must consider before placing their bets. If the consumer price index prints higher than anticipated on March 14, a risk-off scenario leading up to the Fed meeting later in the month could be seen in global markets.
Technically, the BTC/USD pair fell below the $21,400 lows set in February, causing a larger sell-off that headed toward the $20,650 support level. If this support level breaks, the pair could revert to a bear trend and return to the 2022 lows. A daily close below this level on consecutive days would be a strong bearish indicator.
The confluence of negative news and a pessimistic macroeconomic environment has resulted in market volatility, but a comeback to the upside may be on the horizon. The market's reaction to the CPI data and the Fed's policy rate decision in March will still matter for short-term traders.
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