Crypto Price Check: Bitcoin Falls, But Other Cryptocurrencies Show Signs of Strength.

Crypto Price Check: Bitcoin Falls, But Other Cryptocurrencies Show Signs of Strength.

21 March 2023

Bitcoin and other cryptocurrencies fell on Tuesday following a run that took them to their highest level since last summer. While the Federal Reserve decision on Wednesday will be the next major driver, cryptos are showing underlying strength.

Bitcoin’s price has dropped 2% in the previous 24 hours to $27,750 after the largest digital asset recently approached $28,500 — the highest level since the crypto crisis intensified last June. After stalling earlier in March and falling below $20,000, Bitcoin has resumed its bullish streak, gaining about 70% this year and growing for nine of the last ten days.

According to Alex Kuptsikevich, an analyst at broker FxPro, the halt will allow Bitcoin to calm off and generate prospects for another leg higher. Yet, the dangers of a deeper correction remain high, with the first important line of protection likely to be $26,000 and the second $25,000, respectively. We can expect greater market profit-taking ahead of the Fed’s announcement.

There is a long variety of plausible explanations for why cryptos have performed so well in the last two weeks, including the idea that the worldwide bank panic validates Bitcoin’s core ideas of financial decentralization. Most likely, the constraints on banks have modified expectations for US monetary policy, an unintended result of the huge rise in interest rates over the last year, which has smashed Bitcoin and stocks alike.

Traders no longer expect the Fed to be as aggressive with its next interest rate rise on Wednesday, with both the possibility of the central bank holding rates unchanged or rising by a quarter percentage point indicating a more accommodative policy. Signs that rate rises would halt or perhaps reverse at some point this year would be highly beneficial to Bitcoin values, as lower rates increase demand for higher-risk assets such as cryptos.

While additional advances will be enhanced or hampered by macro conditions, Alex Thorn, the head of research at crypto-focused financial services business Galaxy Digital, highlighted that a review of performance, on-chain, and supply-side data reveals grounds for sustained confidence for Bitcoin bulls.

Furthermore, while Bitcoin is expected to follow the Dow Jones Industrial Average and the S&P 500 after the Fed decision on Wednesday, there is evidence that cryptos are strengthening fundamentally beyond their vulnerability to macro issues.

According to Thorn, the connection between Bitcoin and gold is strengthening, while the correlation between Bitcoin and stocks is declining to its lowest level in years. This would suggest that digital assets are considered an uncorrelated play rather than an indicator of risk sentiment — a possible evidence of asset class development.

Furthermore, data suggest that the recent increase is mostly based on accumulation by investors in the “spot market,” or buying Bitcoin directly, rather than price movement caused by the crypto derivatives market. These trends show that buy-and-hold traders predominate rather than pure speculation driving prices.

Yet, as much as some Bitcoiners would want to think, the financial crisis has not led consumers to Bitcoin as a flight to safety asset in the short run. Thus, although Bitcoin bulls point to maturity and strength across cryptos, don’t anticipate swings this week driven by anything other than the Fed decision and interest rate forecast.

Outside Bitcoin, Ether, the second-largest cryptocurrency, fell by 3% to less than $1,750. Smaller cryptos or altcoins performed similarly, with Cardano down 3% and Polygon down 5%. Dogecoin and Shiba Inu both fell 4%, bringing meme-coins into the red.

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