Bitcoin (BTC) saw a significant price drop of 12.5% from March 14 to March 17, reaching $64,545. However, this led to a surge in buying activity around the $65,000 mark. Currently, opinions are divided on whether BTC will surpass its all-time high of $73,755. The focus is now on the U.S. Federal Reserve’s upcoming monetary policy meeting on March 20, as many investors are waiting for its outcome before deciding to invest more in cryptocurrencies. The decision will not only impact short-term considerations but also reflect the Fed’s confidence in the strength of the economy.
One key uncertainty for Bitcoin investors is the timeline for when the Fed will stop reducing its $7.5 trillion balance sheet. Typically, 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 chances of a Bitcoin surge decrease.
The excessive leverage in Bitcoin futures has also raised concerns among 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. However, the imbalance in leverage demand has led to distortions that are rarely sustainable. Perpetual contracts, which recalculate rates every eight hours, have shown a positive funding rate, indicating rising demand for leverage among long position holders.
On March 11, an unusually high funding rate of 0.09% per week was observed, but this declined as bulls faced $370 million in liquidations between March 13 and March 15. Although these figures may seem significant, they only represent around 1% of forcibly closed positions out of Bitcoin’s $34.8 billion open interest. Interestingly, the funding rate dropped to 0.25% per week on March 15, suggesting no excessive demand for short positions and a hesitancy among bears to bet against Bitcoin prices falling below $65,000.
To gauge market sentiment accurately, it is crucial to compare the demand for leveraged long positions with the demand for stablecoins in China. The USD Coin (USDC) premium, which measures the difference between the value of USDC in peer-to-peer transactions and the official U.S. dollar rate, has remained above 3% for the past week. This indicates ongoing demand for cryptocurrencies in China and supports the positive Bitcoin funding rate favoring long positions, suggesting no signs of a bearish trend or investor apprehension.
Please note that this article does not provide investment advice or recommendations. It is essential for readers to conduct their own research and analysis before making any investment or trading decisions.