Decentral Block Post

The U.S. stock market approaches a crucial turning point as uncertainty over inflation rises after hotter-than-expected economic data released in February. Despite mounting investor worries, the economy is showing signs of resilience that could protect against a significant downside move. 

The escalating risk-off sentiment in the market is also creating volatility for Bitcoin (BTC). The leading crypto asset, which has had a strong correlation with the U.S. stock market, moved oppositely to the stock market in February. The correction between BTC and Nasdaq turned negative for the first time in two years. However, with the crypto bulls pausing at the $25,200 level, the risks of a downturn alongside stocks are increasing.

While there’s certainly a reason to maintain caution until the release of new economic data and the United States Federal Reserve meeting in March, some indicators suggest that the worst could still be over in terms of new market lows.

Inflation remains sticky

The biggest worries of the current bear cycle, which began in 2022, have been decade-high inflation. In January, the Consumer Price Inflation (CPI) level came in hotter than expected, with a 0.2% increase versus the previous month.

There are some additional signs that inflation may remain sticky. The housing sector inflation, which commands more than 40% of the weightage in CPI calculation, has shown no sign of a downturn.

Bitcoin (BTC) traded around $22,400 at the March 3 Wall Street open as analysts remained divided over the odds of a recovery.

Hopes for an inverse “Bart Simpson” on BTC

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD trading flat after an earlier flash crash saw $1,000 shaved off in minutes.

As Cointelegraph reported, concerns over the fate of Silvergate Bank exacerbated existing market cold feet to spark a margin call cascade to $22,000.

At the time of writing, only a modest comeback had taken place, while opinions diverged as to how short-term price action would play out. 

“Locked in some profit here on my short at $23,200 and moved my stop loss into profit so it’s risk free,” a risk-off Crypto Tony told Twitter followers.

Bitcoin (BTC) investors reeling from the shock of recent cryptocurrency company failures and banking issues may face another potential problem: a recovering United States dollar.

US dollar strength reemerges

Notably, the U.S. Dollar Index (DXY), which tracks the greenback’s performance against a basket of top foreign currencies, has risen 4% from its Feb. 3 low of 100.82, amid anticipations that the U.S. Federal Reserve will continue raising benchmark rates to cool inflation.

Inflation persists

An air of caution remains as fresh U.S. data shows a recession is not yet imminent.

That includes the latest jobless claims, which fell 2,000 to a seasonally adjusted 190,000 in the week ending Feb. 25, and stronger consumer spending in January. 

Meanwhile, 90% of the U.S. manufacturers surveyed by Bloomberg complained about rising input prices despite the easing supply-chain problems.

Crypto traders' urge to create leverage positions with Bitcoin (BTC) appears irresistible to many people, but it's impossible to know if these traders are extreme risk-takers or savvy market makers hedging their positions. The need to maintain hedges holds even if traders rely on leverage merely to reduce their counterparty exposure by maintaining a collateral deposit and the bulk of their position on cold wallets.

Not all leverage is reckless

Regardless of the reason for traders' use of leverage, currently there is a highly unusual imbalance in margin lending markets that favors BTC longs betting on a price increase. Despite this, so far, the movement has been restricted on margin markets because the BTC futures markets remained relatively calm throughout 2023.

Margin markets operate differently from futures contracts in two main areas. Those are not derivatives contracts, meaning the trade happens on the same order book as regular spot trading and unlike futures contracts, the balance between margin longs and shorts is not always matched.

For instance, after buying 20 Bitcoin using margin, one can literally withdraw the coins from the exchange. Of course, there must be some form of collateral, or a margin deposit, for the trade and this is usually based on stablecoins. If the borrower fails to return the position, the exchange will automatically liquidate the margin to repay the lender.

The borrower must also pay an interest rate for the BTC bought with margin. The operational procedures will vary between marketplaces held by centralized and decentralized exchanges, but usually the lender gets to decide the rate and duration of the offers.

Bitcoin (BTC) erased early-month gains on March 2 as fresh market uncertainty erupted over solvency of crypto bank Silvergate.

BTC price avoids Silvergate, Coinbase stock slip

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD hitting $23,206 on Bitstamp, down around 1.5% on the day.

The pair came under pressure as rumors swirled over the fate of Silvergate, which lost United States exchange Coinbase as a client in a decision the latter said came out of "an abundance of caution."

Silvergate had suffered as a result of the FTX implosion, delaying its 10-K report this week and warning that it could be "less than well capitalized." 

The shares of parent company Silvergate Capital were down 40% on the day at the time of writing.

Bitcoin (BTC) is up 42% since the start of 2023, but short term, the outlook may now favor the bears.

The latest data paints a problematic picture for BTC price action — investors are greedy, but the mainstream is far from ready to buy.

After January’s 40% surge, BTC/USD is having trouble reaching for resistance higher up the chart.

As Cointelegraph reported, the pair spent the whole of February simply consolidating its prior gains, making it likely the least volatile month on record.

Judging by current moves, however, that consolidatory phase may soon be over — but not work out in bulls’ favor.

The price of Ethereum’s native token, Ether (ETH), shows a growing conflict among traders about the market direction for March. This uncertainty has resulted in ETH price consolidating inside a narrow sideways range between $1,600 and $1,700 since Feb. 15.

25% ETH price correction on the table in March

The uncertainty stems from Ethereum’s long-awaited Shanghai upgrade going live sometime in March.

Several analysts predict the upgrade, which will enable stakers to withdraw their vested tokens from Ethereum’s proof-of-stake (PoS) smart contract, will trigger a short-term sell-off event. 

The Ethereum PoS smart contract has attracted more than 17.4 million ETH (~$28.35 billion at the current exchange rate) since its introduction in December 2020, per Etherscan.

In addition, Ether is finding it difficult to break above the technical resistance range. The Ethereum token has attempted to flip the $1,650–1,700 area to support multiple times since August 2022, as shown by the red bar in the chart below.

Bitcoin (BTC) bulls laid most of their options at $24,500 and higher for the March 3 options expiry, and given the recent bullishness seen from BTC, who can blame them? On Feb. 21, Bitcoin price briefly traded above $25,200, reflecting an 18% gain in eight days. Unfortunately, regulatory pressure on the crypto sector increased and despite no effective measures being announced, investors are still wary and reactive to remarks from policymakers.

For instance, on Feb. 23, U.S. Securities and Exchange Commission Chair Gary Gensler claimed that "everything other than Bitcoin" falls under the agency's jurisdiction. Gensler noted that most crypto projects "are securities because there's a group in the middle and the public is anticipating profits based on that group."

March 1 comments from two U.S. Federal Reserve (FED) officials reiterated the necessity for even more aggressive interest rate increases to curb inflation. Minneapolis FED President Neel Kashkari's and Atlanta FED President Raphael Bostic's comments also decreased investors' expectations of a monetary policy reversion happening in 2023.

The stricter stance from the macroeconomic and crypto regulatory environment caused investors to rethink their exposure to cryptocurrencies. Nevertheless, Bitcoin's price decline practically extinguished bulls' expectation for a $24,500 or higher options expiry on March 3, so their bets are unlikely to pay off as the deadline approaches.

Bulls were "rug pulled" by negative regulatory remarks

The open interest for the March 3 options expiry is $710 million, but the actual figure will be lower since bulls became overconfident after Bitcoin traded above $25,000 on Feb. 21.

The price of Ether (ETH) declined 9.8% between Feb. 19 and Feb. 25 after the price resistance at $1,725 proved stronger than expected. Still, the correction was insufficient to break the 6-week-long ascending channel and did not cause Ether derivatives metrics to turn bearish.

Ether's price resilience can be partially explained by the operational failure of some of its smart contract blockchain competitors. For instance, Solana (SOL) faced a 20-hour-long outage on Feb. 25, which was only resolved after a network upgrade coordinated by validators. The network restart also involved purging some of the latest slots, although Solana developers said that "no confirmed user transactions were rolled back or impacted."

NEM (XEM) experienced a "chain halt" on Feb. 27 that lasted for 15 hours, causing multiple exchanges to halt deposits and withdrawals and developers promised to release an update to prevent further misbehavior. Curiously, the latest post from the official NEM account on Twitter, excluding a Merry Christmas greeting, was a "Please Stand By" image posted in July 2022.

The regulatory environment remains shady for cryptocurrencies, and the latest victims were global payment processing companies Visa and Mastercard. According to a Reuters report published on Feb. 28, the firms are delaying the launch of new partnerships with crypto firms until market conditions improve and a more transparent regulatory framework is established.

In more positive news, Ethereum's Sepolia testnet was successfully hard forked on Feb. 28 in preparation for the Shanghai upgrade. The much-anticipated mainnet update expected for March should finally allow validators to withdraw their staked Ether from the Beacon Chain. Developers are now prepping the Goerli testnet to enter a similar stage.

Bitcoin (BTC) moved just 0.03% last month in United State dollar terms, making February 2023 likely its least volatile in history. 

Data from Coinglass after the monthly close confirms that BTC/USD went practically nowhere for four weeks straight.

Bitcoin monthly candle barely leaves a trace

To say that Bitcoin is less volatile than it was is something of an understatement when it comes to February.

Despite its ups and downs, mostly due to macroeconomic data, BTC price action finished the month almost exactly where it began at around $23,500.

That means that Bitcoin was stabler than a raft of mainstream assets, including stocks, commodities and, of course, major world currencies.

Bitcoin (BTC) millionaires are made when the BTC price crosses $20,000, data reveals.

According to on-chain analytics firm Glassnode, there are currently over 67,000 BTC wallets worth $1 million or more.

$20,000 makes 50-BTC hodlers happy

Bitcoin is famous for its relationship with the $20,000 price tag.

Prominent since becoming the all-time high of Bitcoin’s previous halving cycle, $20,000 is more than just a technical and psychological line in the sand.

As Glassnode now shows, when BTC/USD crosses that price point, many hodlers either gain or lose U.S. dollar millionaire status.

The month of February was filled with investors’ hope that an earlier-than-expected Federal Reserve policy pivot would occur, but this sentiment faded as the inflation and employment data came in hotter than expected. While the start of the month was bullish for the crypto market, Bitcoin (BTC) retraced 60% of the move from February’s low at around $21,500 to the peak of $25,250. 

Nevertheless, some narrative-driven rallies still caused significant price growth in some altcoins. The leading narratives were Bitcoin NFTs, liquidity staking derivatives (LSDs) on Ethereum and Artificial Intelligence (AI) projects.

Let’s review the top performing coins of the month.

Stacks (STX)

Stacks gained much attention as the hype over Ordinals kicked off at the start of the month. Gamma, a Stacks-based project, enabled the creation of Bitcoin Ordinals. However, full functionality in trading and public minting of Ordinals on Stacks is still in development.

Meanwhile, Stacks faces competition from other blockchains like Ethereum, where developers are working toward enabling Bitcoin NFT trading on Ethereum. Yuga Labs, the leading NFT firm, announced a 300-piece generative collection on Bitcoin on Feb. 27. The auction (or minting) will likely be held on Ethereum due to the lack of infrastructure on Bitcoin. Thus, as Stacks delays its development of making Ordinals accessible, more liquid chains are taking advantage of other solutions.

The recent weakness in the crypto market has not invalidated the six-week-long ascending trend, even after a failed test of the channel's upper band on Feb. 21. The total crypto market capitalization remains above the psychological $1 trillion mark and, more importantly, cautiously optimistic after a new round of negative remarks from regulators.

As displayed above, the ascending channel initiated in mid-January has room for an additional 3.5% correction down to $1.025 trillion market capitalization while still sustaining the bullish formation.

That is excellent news considering the FUD — fear, uncertainty and doubt — brought down by regulators regarding the cryptocurrency industry.

Recent examples of bad news are, a United States District Court judge ruling that emojis such as the rocket ship, stock chart and money bags infer "a financial return on investment," according to a recent court filing. On Feb. 22, a federal court judge ruling on a case against Dapper Labs denied a motion to dismiss the complaint alleging that its NBA Top Shot Moments violated security laws by using such emojis to denote profit.

Outside of the U.S., on Feb. 23, the International Monetary Fund (IMF) issued guidance on how countries should treat crypto assets, strongly advising against giving Bitcoin a legal tender status. The paper stated, "while the supposed potential benefits from crypto assets have yet to materialize, significant risks have emerged."

Bitcoin (BTC) faced a showdown with a key trend line on Feb. 28 as the monthly close finally arrived.

Bitcoin "doesn't feel bullish" into February close

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD circling an area around $23,500 at the Wall Street open.

With United States stocks flat and the U.S. dollar avoiding a return to strength, eyes were on Bitcoin to preserve its gains through last-minute volatility.

“Would like to see more Bitcoin bid liquidity enter the active trading range to increase the chances of closing the Monthly candle above the 50-Month Moving Average,” monitoring resource Material Indicators wrote in one of several Twitter posts on the day.

“Volume has been weak, so at this stage doesn't feel bullish.”

The latest data shows that Bitcoin (BTC) exchanges have less BTC to buy than at any time since early 2018.

On-chain analytics firm Glassnode confirms that as of February 2023, exchange reserves are at five-year lows.

“Wild stat” shows Bitcoin supply maturation

The latest statistics reflect the determination of Bitcoin hodlers, as major exchanges’ BTC balances are in “down only” mode.

As of Feb. 27, the latest date for which data is available, the platforms tracked by Glassnode held a combined 2,272,798 BTC.

It was in March 2018 that the number was previously so low, with March 2020 representing the current all-time high of 3,202,326 BTC.

Bitcoin (BTC) price broke above $25,000 on Feb. 21, accruing a 53% year-to-date gain. At the time, it made sense to expect the rally to continue after U.S. retail sales data from the previous week vastly surpassed the market consensus. This fuelled investors’ hope for a soft landing and a possible averted recession in the U.S. economy. 

The apex of the U.S. Federal Reserve’s strategy success would be increasing interest rates and scaling back its $9 trillion balance sheet reduction without significatively damaging the economy. If that miracle happens, the outcome would benefit risk assets, including stocks, commodities and Bitcoin.

Unfortunately, the cryptocurrency markets took a hit after the $25,200 level was rejected and Bitcoin price plunged 10% between Feb. 21 and Feb. 24. Regulatory pressure, mainly from the U.S., partially explains investors' rationale for the worsening market conditions.

In a Feb. 23 New York Magazine interview, Securities and Exchange Commission  Chair Gary Gensler claimed “everything other than Bitcoin” is potentially a security instrument and falls under the agency’s jurisdiction. However, multiple lawyers and policy analysts commented that Gensler’s opinion is “not the law.” Hence, the SEC had no authority to regulate cryptocurrencies unless it proved its case in court.

Additionally, at a G20 meeting, U.S. Treasury Secretary Janet Yellen stressed the importance of implementing a strong regulatory framework for cryptocurrencies. Yellen’s remarks on Feb. 25 followed International Monetary Fund managing director Kristalina Georgieva pointing out that “if regulation fails,” then outright banning “should not be “taken off the table.”

Blur, a NFT marketplace, has seen its trading volumes and total sell-side liquidity skyrocket since conducting an airdrop on Feb. 14, 2023. The reason for the spike could be the start of season 2 airdrops, where 10% of BLUR token’s total supply will be distributed to certain users based on their activity. The team allocated 12% toward an early user airdrop in the first season that ran from the marketplace’s gated launch in March 2022 to February 2023.

Blur has made a significant dent in OpenSea’s position as the leading marketplace. Analytics from data scientist Hildobby shows that Blur is eating into the market share of OpenSea and other aggregators like X2Y2. Blur's incentive program and advanced NFT trading features are causing users to shift from OpenSea to Blur.

OpenSea feels the heat 

Following Blur’s example, OpenSea discontinued its marketplace fee of 2.5% per sale. The fact that OpenSea LLC was willing to let go a significant chunk of its earnings—close to around $336.8 million for one year—suggests that Blur’s growth threatens it.

The two NFT giants also recently locked horns on the critical issue recently of creator royalties. By restricting the ability to earn full creator royalties on both platforms, creators have to choose between Blur and OpenSea to list collections.

Pacman, the founder of Blur, told Cointelegraph on Feb. 23 that OpenSea started the spat first. They were forced to retaliate with restrictive features like limited royalties on Blur if a collection is also listed on OpenSea as well. However, ideally, he would want both creators to be able to earn their royalties on both platforms without having to choose. It appears that Pacman wants OpenSea to succumb to the competition and instead of fighting Blur, it should accommodate the aggregator progressively.