Is Bitcoin ready for a new all-time high now that the excessive leverage is gone?


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 be able to surpass its all-time high of $73,755.

All eyes are on the Federal Reserve’ monetary policy meeting

Many believe that investors are waiting for the U.S. Federal Reserve’s (Fed) 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. Base Money, USD (orange, left) vs. Bitcoin/USD (blue, right)

U.S. Base Money 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 known as inverse swaps, incorporate a rate that is recalculated every eight hours. A positive funding rate signals a rising demand for leverage among those holding long positions.

Bitcoin perpetual futures 8-hour funding rate. Source: Coinglass

An unusually high funding rate of 0.09% was observed on March 11, equivalent to 1.7% per week. This indicator declined as bulls faced $370 million in liquidations from March 13 to March 15. While these figures may seem significant at first glance, considering Bitcoin’s open interest is at $34.8 billion, it translates to approximately 1% of positions being forcibly closed.

Interestingly, Bitcoin’s funding rate dropped to 0.25% per week on March 15, considered neutral in a market where traders are typically bullish. This indicates that there was no excessive demand for short positions, suggesting that bears were hesitant to bet against Bitcoin prices falling below $65,000.

Related: Bitcoin to enter pre-halving ’danger zone,’ but crypto CEOs remain bullish

To verify whether the decreased demand for leveraged long positions accurately reflects market sentiment, it’s essential to compare this data with the demand for stablecoins in China, a critical indicator of retail investors entering or exiting the crypto markets. The USD Coin (USDC) premium measures the difference between the value of USDC in peer-to-peer transactions and the official U.S. dollar rate.

USC Coin (USDC) peer-to-peer trades vs. USD/CNY. Source: OKX

The USDC premium has been above 3% for the past week, indicating that the stablecoin is trading at a value higher than its pegged rate. Most notably, this premium has not fallen below its fair value even amid the recent price correction to $64,545 on March 17.

This trend signifies ongoing demand for cryptocurrencies in China, supporting the positive Bitcoin funding rate favoring long positions and indicating no signs of a bearish trend or investor apprehension.