Bitcoin (BTC) experienced a 12.5% drop in price from March 14 to March 17, falling to $64,545, which led to significant buying activity around the $65,000 mark. Currently, opinions are mixed, and while the excessive leverage in Bitcoin futures has been resolved, investors are still pondering if BTC will be able to surpass its all-time high of $73,755.
All eyes are on the Federal Reserve’s monetary policy meeting
Many believe that investors are waiting for the U.S. Federal Reserve’s monetary policy meeting on March 20 before deciding to invest more in cryptocurrencies, despite the widespread expectation that interest rates will remain unchanged. This decision goes beyond short-term considerations, focusing on the Fed’s confidence in the economy’s ongoing strength.
Another key uncertainty for Bitcoin investors is when the Fed will cease reducing its $7.5 trillion balance sheet. Generally, a more expansive Fed monetary policy indicates more money in circulation, which is beneficial for risk-on assets.
U.S. monetary base, USD (orange, left) vs. Bitcoin/USD (blue, right)
The U.S. monetary base represents currency and reserves within the banking system. Higher interest rates typically aim to stabilize or decrease this figure. By diminishing the appeal for businesses to borrow and grow, this contractionary economic strategy usually helps control inflation.
Some analysts speculate that Bitcoin’s potential bull run in 2024 relies heavily on the Fed transitioning from a contractionary to an expansive monetary policy. This shift could be prompted by inflation falling below 3% or signs of an economic downturn. Therefore, if interest rates remain elevated for an extended period, the likelihood of a Bitcoin surge decreases.
Bitcoin futures and Asian stablecoin demand point to a healthy bounce
Excessive leverage has also caused unease among Bitcoin investors, particularly as the open interest in BTC futures hit a record high in March, increasing from $22.2 billion on Feb. 25 to $35.5 billion on March 14. Moreover, the imbalance in leverage demand led to distortions that are rarely sustainable.
Perpetual contracts, also…
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