Bitcoin (BTC) saw a significant decrease in price from March 14 to March 17, dropping to $64,545. However, this dip triggered a surge in buying activity around the $65,000 level. Currently, opinions are divided, with investors wondering if BTC will be able to surpass its previous all-time high of $73,755.
All eyes are now on the upcoming monetary policy meeting of the U.S. Federal Reserve, which is scheduled for March 20. Many investors are waiting for this event before deciding whether to invest more in cryptocurrencies, even though it is widely expected that interest rates will remain unchanged. The decision to invest in cryptocurrencies goes beyond short-term considerations and hinges on the Fed’s confidence in the ongoing 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 monetary policy by the Fed 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 stay elevated for an extended period, the chances of a Bitcoin surge decrease.
The excessive leverage in Bitcoin futures has also raised concerns among investors, especially as the open interest in BTC futures reached a record high in March. This increase in leverage demand led to distortions that are typically not sustainable.
Perpetual contracts, which are recalculated every eight hours, showed an unusually high funding rate of 0.09% on March 11, equivalent to 1.7% per week. However, this rate declined as bulls faced $370 million in liquidations from March 13 to March 15. While these figures may seem significant, they only represent about 1% of positions being forcibly closed, considering Bitcoin’s open interest is at $34.8 billion.
Interestingly, Bitcoin’s funding rate dropped to 0.25% per week on March 15, which is considered neutral in a market 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 prices falling below $65,000.
To gauge market sentiment accurately, it is crucial to compare the data on leveraged long positions with the demand for stablecoins in China, which is a key indicator of retail investors entering or exiting the crypto markets. 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 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, showing no signs of a bearish trend or investor apprehension.
Please note that this article does not provide investment advice or recommendations. Readers should conduct their own research and analysis before making any investment decisions.