Bitcoin’s Hot Streak May Cool in March, Analysts Warn
Bitcoin investors have been riding a wave of success in recent weeks as the flagship cryptocurrency experienced a surge in value. However, analysts are cautioning that this hot streak may come to an end in March. Despite Bitcoin’s impressive performance in February, experts believe that the rapid price increase is unsustainable and a correction is on the horizon.
The month of February proved to be the best month for Bitcoin since 2020, with the cryptocurrency starting the week at around $50,000 and reaching a high of over $62,000 by the end of the week. This surge brought Bitcoin within 10% of its all-time high of $68,982.20, which was achieved in November 2021. Yuya Hasegawa, a crypto market analyst at Japanese bitcoin exchange Bitbank, expressed skepticism about the sustainability of this price action, stating, “The recent price action seems too quick and too big to sustain over the next month.”
Despite concerns about the potential cooling of Bitcoin’s hot streak, there are factors that have been contributing to its continued rise. Cash inflows into spot bitcoin ETFs have been accelerating, overpowering technical signals that would typically indicate a reversal in trend. However, analysts warn that increased volatility and trading volumes could lead to a trend reversal in the near future. Traders are advised to exercise caution and patience in the coming weeks.
Data from CryptoQuant reveals that unrealized profit margins are approaching extreme levels following last week’s rally. When this indicator reaches about 40%, it typically signals a price correction. Additionally, the cost of opening new long positions in the futures market has spiked during the recent rally, historically indicating an impending correction in the bitcoin price.
March also presents seasonal risks in traditional capital markets, which could potentially impact the crypto market. Some investors may choose to take profits during this time to fulfill tax obligations. David Duong, head of institutional research at Coinbase, acknowledges these risks but also highlights that bitcoin long-short ratios suggest that bitcoin could still push higher. He predicts that March will be a period of sideways movement before the next leg of growth.
There are additional factors that could influence Bitcoin’s performance in March. The end of the Federal Reserve’s Bank Term Funding Program on March 11 and concerns surrounding New York Community Bancorp could cause price action in the crypto market. Hasegawa warns of a potential contagion risk for smaller regional banks, which could lead to a banking crisis and impact the equity and crypto markets.
Historical data shows that Bitcoin has fallen in six of the last 11 Marchs, but it has also had an average return of 13% for the month. However, this average is skewed by a 173% gain in 2013. On the other hand, Ether has ended the month higher in six of the last eight Marchs since its inception, with an average gain of 25%.
Despite the potential challenges in March, Bitcoin’s setup for the year remains strong. Demand for Bitcoin is expected to continue building as newly launched ETFs attract investors. Additionally, Bitcoin supply is tightening due to the upcoming halving on April 22. Despite resistance on the price chart in March, Duong believes that Bitcoin could reach a fresh record sooner than anticipated. He states, “The possibility of reaching all-time highs is likelier in the first half of the year than I thought it was.”
In conclusion, while Bitcoin’s hot streak may cool in March, analysts remain optimistic about its long-term prospects. The cryptocurrency market is known for its volatility, and caution should always be exercised when investing. However, with increasing demand and a tightening supply, Bitcoin’s journey to new all-time highs may be closer than expected. Investors should stay vigilant and closely monitor market trends as they navigate the exciting world of cryptocurrencies.
