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Bitcoin price falls to a multi-month low, but data points to a possible short-term bounce

Bitcoin price falls to a multi-month low, but data points to a possible short-term bounce

March started off on a low due to a resurrection of inflationary fears. On March 7, hawkish comments from U.S. Federal Reserve chairman Jerome Powell amplified the market’s expectation of a 50-basis point hike in the upcoming policy rate meeting on March 22 to March 23. 

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

A spike in negative sentiment may preclude a bounce

The flurry 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 U.S. versus the rest of the world. The premium dipped to a two-month low on the morning of March 9 as negative news piled on.

Coinbase premium index. Source: CryptoQuant

On-chain analytics firm, Santiment, reported fear, doubt and uncertainty (FUD) settling in the markets, increasing the “probabilities” of contrarian price bounces 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 doesn’t show considerable negative bias to suggest the possibility of a short squeeze. The Fear and Greed Index also slipped to two-month lows of 44 but stayed well above historic bounce levels between 10 to 25. It suggests that any positive rallies are likely to be short-lived. 

Besides negative sentiment, on-chain data shows positive accumulation among the most critical stakeholders, miners and whales. The holdings of Bitcoin miners have been on the rise since the start of 2023, as it reaches a six-month peak. Glassnode data also shows an increase in the number of Bitcoin wallets with more than 1,000 BTC.

The holdings of one-hop BTC miner addresses. Source: Coinmetrics

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 bull-bear pivot line. If the prices slide back below this level, it could invalidate the early 2023 gains and throw the market back into a long-term bearish trend.

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