Although Bitcoin (BTC) has hit a new all-time high, cryptocurrency markets are facing some near-term macro headwinds and negative technical factors that could limit further gains, Coinbase (COIN) said in a report on Friday.
“The short covering action that contributed to the initial upside potential now appears to have been exhausted, but US spot Bitcoin ETFs continue to be a significant anchor for Bitcoin demand,” wrote analysts David Duong and David Han.
In previous cycles, “liquidity conditions” were the biggest setback to price momentum, but that no longer appears to be the case. Still, these support drivers “will likely encounter some key macroeconomic and technical headwinds in the coming weeks,” the authors write.
The Federal Reserve is expected to phase out the Bank Term Funding Program (BTFP), which was set up to support U.S. regional banks, on March 11, the report said, adding: “This could be an arbitrage opportunity for banks close, but at the cost of “which may lead to renewed vulnerabilities in the financial system.”
Additionally, the note said a decline in fund managers' cash reserves coupled with quarter-end rebalancing could lead to a liquidity lock-up.
Because of these opposing dynamics, according to Coinbase, the most likely scenario is that Bitcoin trades within a narrow range until the “next idiosyncratic event – the Bitcoin halving in mid-April.” The reward halving, which occurs every four years, cuts Bitcoin mining rewards by 50%.
Coinbase notes that exchange-traded funds have changed Bitcoin's market dynamics, undermining the utility of studying previous halving cycles. “The cumulative net growth of BTC held by ETFs has exceeded that of miners by almost three times,” the report added.
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