Now That The 2023 Rally Has Faded, The Direction Of Inflation Will Drive Crypto's Action In March

Bitcoin may experience a choppy month as inflation worries resurface.

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Following a largely flat month, bitcoin and ether are starting the new trading month on a high note, each increasing by less than 1% on Wednesday. The stock market, meanwhile, continued its downward trend from the previous day.

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Although their moderate February gains were small in comparison to their significant January jump, many investors still consider it to have been a profitable month. While all of the main stock indices reported losses for February, bitcoin managed to gain 0.8% for the month while ether grew by 2.5%.

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Bitcoin has benefited from a flight to quality in the cryptocurrency market, according to Callie Cox, a U.S. investment analyst at eToro. "If you're an investor in stocks, you may think of bitcoin as this growing engine without any clear cashflows. Bitcoin, though, might be viewed as this prestigious store of wealth if you're a crypto investor who has been devastated by a sharp decline in an altcoin.

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It's all relative, but from the standpoint of a portfolio strategy, you can't ignore the inherent dangers with cryptocurrency, she continued. We continue to believe that bitcoin might struggle in an environment with high rates of inflation.

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In 2023, the relationship between bitcoin and stocks has weakened. Yet chart analyst and Fairlead Strategies creator Katie Stockton told Trade Algo earlier this week that she anticipates that correlation to return as markets are now dropping.

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The U.S. dollar index and bitcoin have been rising higher together recently, despite the fact that their normal movements are inverse, according to Rob Ginsberg, a technical analyst at Wolfe Research.

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"One of them will probably have to go. Our wager is on the dollar declining in the foreseeable future," he remarked on Wednesday.

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He continued, "To put it mildly, it's a fascinating tape out there," pointing to the rising dollar and interest rates, declining commodities, and unstable stock markets. "Crypto continues to hold in there and consolidate even with the recent overheated drop."

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While it "feels like the fun is finished," he continued, "the charts suggest differently."

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We consider this retreat to be a buy and see it as a healthy reaction to their previous overbought conditions. It's difficult to believe that cryptocurrency won't gain significantly if we're right and there is more potential in the near future.

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What To See

The majority of trade activity in February was driven by industry changes, but the Fed's fight against inflation is still very much in the spotlight, according to Kruger. He listed inflation as one of the major price drivers heading into March, along with regulation and institutional adoption, which were both significant price drivers in February.

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Following the announcement of a number of enforcement proceedings by U.S. regulators against cryptocurrency companies, bitcoin and ether experienced temporary drops of 6% and 8.5%, respectively. Although regulation can affect prices in the short term, long-term investors view it as a positive development in the long run, according to Kruger.

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These factors do introduce some uncertainty into the equation, and this uncertainty frequently has, you know, a negative tendency, the speaker continued.

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Cox stated that she will be keeping a watch on both the major economic data and the Fed's upcoming policy meeting, which will start on March 21.

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The tension between high rates and respectable economic growth "may persist as we head into March," she said. "For the past few weeks, investors' biggest concern has been the resurgence of increasing inflation and how the Fed will react to it. Before we restart the rise we witnessed in January, we might need to see further proof that inflation is decreasing in a way that the Fed is comfortable with.

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Over $25,000

Despite the fact that bitcoin maintained steady in February, investors are unsure of when to anticipate a meteoric rise.

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To add further context to its advances, Stockton and Joel Kruger, market strategist at LMAX Group, both stressed $25,000 as the level top. Coin Metrics estimates that it is presently selling at around $23,400.

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During this most recent run up in February, we "poked above it, but we just couldn't establish above," he added. "Although we're below $25,200, there's still a chance that this market can retrace and consolidate and that we won't be seeing that major breakout just yet."

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We did well and everything has been constructive, but we genuinely... To feel truly optimistic about the prospects, we need to see a weekly closure above that high, he continued.