Bitcoin (BTC) saw a significant price drop of 12.5% from March 14 to March 17, causing a surge in buying activity around the $65,000 level. The current sentiment is mixed, with investors wondering if BTC can surpass its all-time high of $73,755.
Investors are closely watching the U.S. Federal Reserve’s monetary policy meeting on March 20 before deciding to invest more in cryptocurrencies. Despite expectations that interest rates will remain unchanged, this decision goes beyond short-term considerations and focuses on the Fed’s confidence in the strength of the economy.
Another uncertainty for Bitcoin investors is when the Fed will stop reducing its $7.5 trillion balance sheet. Generally, a more expansive Fed monetary policy means more money in circulation, which is beneficial for risk-on assets.
Some analysts speculate that Bitcoin’s potential bull run in 2024 depends on the Fed transitioning from a contractionary to an expansive monetary policy. This shift could be triggered by inflation falling below 3% or signs of an economic downturn. Therefore, if interest rates remain high for an extended period, the likelihood of a Bitcoin surge decreases.
Excessive leverage has also caused concern among Bitcoin investors. The open interest in BTC futures reached a record high in March, increasing from $22.2 billion on Feb. 25 to $35.5 billion on March 14. The imbalance in leverage demand led to distortions that are rarely sustainable.
Perpetual contracts, which incorporate a recalculated rate every eight hours, showed a high funding rate of 0.09% on March 11, equivalent to 1.7% per week. This rate declined as bulls faced $370 million in liquidations from March 13 to March 15. However, considering Bitcoin’s open interest is at $34.8 billion, it translates to only about 1% of positions being forcibly closed.
Interestingly, Bitcoin’s funding rate dropped to 0.25% per week on March 15, indicating a neutral market sentiment where traders are typically bullish. This suggests that there was no excessive demand for short positions, indicating that bears were hesitant to bet against Bitcoin falling below $65,000.
To confirm whether the decreased demand for leveraged long positions accurately reflects market sentiment, it’s important to compare this data with the demand for stablecoins in China. The USDC premium, which measures the difference between the value of USDC in peer-to-peer transactions and the official U.S. dollar rate, has been above 3% for the past week. This indicates ongoing demand for cryptocurrencies in China and supports the positive Bitcoin funding rate favoring long positions.
This article does not provide investment advice or recommendations. Readers should conduct their own research before making any investment or trading decisions.