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Bitcoin went on a hot streak, ending February with a rapid rally. Bitcoin, which started the week around $50,000, rose above $64,000 by the end of the week, only 10% below its all-time high of $69,000 in November 2021. However, according to analysts, investors are advised to be careful in March.
Yuya Hasegawa, a cryptocurrency market analyst at Japanese Bitcoin exchange Bitbank, warns that the recent price movement appears to be too fast and too large to be sustained over the next month. “Cash inflows into spot bitcoin ETFs appear to be accelerating and overwhelming these technical signals,” the analyst said.
Analysts suggest that the combination of more volatile price movements and an increase in trading volumes could signal a trend reversal. They are telling investors to be patient and careful in the coming weeks. “In the very short term, the price may move higher, but soon it will probably become difficult to continue as the market begins to develop a sense of caution,” Hasegawa added.
Data from CryptoQuant shows that unrealized profit margins are approaching extreme levels following last week's rally. According to CryptoQuant's research manager Julio Moreno, this indicator, currently 32%, signals a price correction when it reaches around 40%.
According to CryptoQuant, although Bitcoin traded above $62,000 at the weekend, its realized price dropped to $42,000. This is the same level that JPMorgan suggested Bitcoin could fall after April when BTC halving-induced euphoria subsides.
CryptoQuant also showed that the cost of opening new long positions in the futures market has increased in the recent rally, which analysts say historically indicates an impending correction in BTC price.
David Duong, head of institutional research at Coinbase, noted that March tends to present seasonal risks in traditional capital markets, and the cryptocurrency market may not be immune from them. For example, some people receive dividends during this period to pay their taxes.
Despite these warnings, Bitcoin long-short rates indicate that BTC may still rise, according to analysts. “March will mean going back and forth in a sideways pattern within a narrow range before we see the next rise,” Duong told CNBC.
Hasegawa noted that the March 11 expiration of the Fed's Bank Term Funding Program and current concerns surrounding New York Community Bancorp could cause some price movement in March. “There is still a crisis spillover risk for small regional banks. Another banking crisis could cause the Fed to launch a brand new liquidity injection program, but if the crisis grows large enough to unsettle the equity market, it could also impact the crypto market,” he said.
Last year, the regional banking crisis served as Bitcoin's first major catalyst, pushing it up nearly 30% in March 2023. Bitcoin has fallen in six of the last eleven March months, according to CoinGlass, and although it averaged a 13% return for the month, that trend has diverged from a 173% gain in 2013.
While Bitcoin supply tightened at the halving on April 22, Bitcoin's structure for the year remains strong, with demand spurred by newly launched ETFs expected to continue growing. Despite some price chart resistance in March, Duong said BTC could reach a new record earlier than anyone expected as we head into 2024.
“The possibility of reaching all-time highs in the first half of the year is higher than I thought,” Duong said.
*This is not investment advice.