Bitcoin (BTC) is looking stable at the start of a new week after recovering from a drop to $43,000 — what’s in store?
After last week’s 20% drop from all-time highs, opinions are divided over what the future might look like for Bitcoin price action in the short term. Macro factors are encouraging, but naysayers insist that a major crash is still a distinct possibility.
Cointelegraph highlights five factors that could be set to influence BTC/USD in the coming days.
Fresh stimulus, fresh buy-ins?
Macro is looking to deliver a perfect storm for alternative assets, led by the United States. President Joe Biden’s $1.9 trillion stimulus package has been under review by lawmakers, who have all but given the green light for yet another unfathomably large money-printing exercise to begin.
Traditionally a boon for Bitcoin, the huge increases in the dollar supply are set to include direct payments to eligible Americans, this time $1,400.
The third such “stimulus check” — or “stimmy,” as it is popularly referred to — could easily find its way into the Bitcoin ecosystem if historic trends repeat themselves this year. As Cointelegraph reported, in 2020, amounts equal to stimulus check payouts began appearing on exchanges soon after regulators approved them.
While it was a niche phenomenon a year ago, this March is an entirely different playing field for Bitcoin and altcoins, with prices exploding and with the publicity in recent months.
Coupled with the ongoing appeal and controversy of social-media-inspired stock trading, the potential impact on cryptocurrency more broadly from the U.S.’ “free money” could hardly be more obvious.
“In the US a $1.9 trillion stimulus package is on the way. That’s more than all the cash currently sitting on the US Treasury account at the Federal Reserve,” on-chain analytics service Ecoinometrics summarized to Twitter followers.
“This is good for Bitcoin.”
Stocks and DXY climbing
On the topic of stocks, these have been rallying once again after a global bond sell-off last week had regulators concerned.
So too has the strength of the U.S. dollar currency index (DXY), which continues its climb from late last week after hitting lows of 89.67. At the time of writing, the DXY measured over 91 for the first time since Feb. 8.
A strong DXY tends to come hand in hand with price problems for BTC/USD, a persistent trait that characterized much of last year.
With the temporary boost of the stimulus package likely to wear off sooner rather than later, however, the status quo may not endure for long.
“There is little doubt in my mind that central banks will eventually lean quite hard against a sustained rise in yields,” Deutsche Bank strategist Jim Reid said in an admonitory note to clients quoted by Reuters.
“They simply can’t afford to see it happen with debt so high.”
Trader on BTC price: “Relax”
Within Bitcoin, much attention is still being given to “the dip” across social media and further afield.
After hitting lows of just above $43,000 over the weekend, bulls were left disappointed that previous bottoms around the $44,000 had not constituted a definitive floor.
Against a backdrop of unbelievable performance since March 2020, however, the dive of $15,000 from all-time highs of $58,300 last month seemed almost like a non-event for some.
“The panic of yesterday was so unnecessary. Welcome to the markets, dips happen. Part of the game,” Cointelegraph Markets analyst Michaël van de Poppe wrote on Monday.
“We just continue grinding and Bitcoin is just starting. Relax.”
In a fresh video update, Van de Poppe noted that the net balance on exchanges is still decreasing, indicating that buyer appetite is clearly present at current levels and investors are making the most of cheaper levels to accumulate, not sell.
“You shouldn’t be worrying at all about this correction as this is just a very healthy and natural correction that we’re seeing on the markets here, especially given that we’ve just anticipated a run from $10,000 to $58,000 in just a matter of months,” he said.
For bulls, it is important to avoid a deeper drop to take liquidity below the $42,000 level. Should Bitcoin avoid this, a chance to move higher remains.
A “full reset” for bearish Bitcoin indicators
For Bitcoin metrics, the dip has also been a positive, rather than negative, sign. Most prominent among them is the spent output profit ratio (SOPR), which benefited from a “reset” as BTC/USD returned to the mid-$40,000 range.
As Cointelegraph reported, SOPR provides a window into trader mentality: Once it turns negative, it indicates that anyone selling BTC is selling it at a loss.
“The daily Bitcoin Spent Output Profit Ratio (SOPR) has seen a full reset, and turned negative for the first time in five months — investors were on average moving BTC at a slight loss, indicating profit-taking has abated,” on-chain monitoring resource Glassnode said in a series of tweets at the weekend.
Total realized losses for Feb. 27 alone were $243 million from wallets taking a hit on their balance.
Beyond the SOPR, derivatives funding rates saw a “reset” of their own last week as a major options expiry date came and went on Friday. Short traders, with that, are effectively paying long positions once again, rather than the other way around.
The combined impact of these two phenomena is only good for Bitcoin, with historical precedent serving to support the theory that their current behavior is a bullish signal.
No greed, just light fear
A final round of resets focuses on sentiment rather than numbers. In an update, market insight firm Santiment noted that Bitcoin was getting its most negative press on social media in five months.
Far from being a cause for concern, however, the implication could be that a BTC buy-in is a prime move to capitalize on overly cautious investor mood.
“Buying into crowd fear can lead to rewards,” Santiment wrote on Twitter.
“And albeit only mildly fearful, #Twitter’s #Bitcoin commentary is at the most negative ratio in about 5 months, according to our algorithm. After last week’s retrace, the bearish narrative has returned.”
In a breath of fresh air, meanwhile, the popular Crypto Fear & Greed Index, previously near all-time highs, has almost halved in a matter of days.
Based on multiple factors, the Crypto Fear & Greed Index aims to process sentiment to provide a rough idea of when crypto markets are overly bearish or unreasonably bullish.
At the time of writing, the index measured 38, its lowest level since September 2020.