While bitcoin (BTC) has climbed sharply from recent lows below $4,000, it’s still on track to end March with a double-digit price loss.

The top cryptocurrency by market value is currently trading near $6,440, representing nearly a 68 percent rise from the low of $3,867 registered on March 13. Even so, prices are still down 24 percent on a month-to-date basis.

If that loss is held through Tuesday’s close (00:00 UTC), it would be the biggest monthly percentage decline since November 2018. Back then, the cryptocurrency had tanked by 37 percent, according to CoinDesk’s Bitcoin Price Index.

It’s also the second straight month in the red for bitcoin after an 8.5 percent decline in February.

The cryptocurrency has registered double-digit losses in just two months out of the last 13. Meanwhile, the bulls have managed to produce gains of over 10 percent in five months over the same period.

Why the drop?

Bitcoin, often touted as a safe haven asset, dropped sharply in March despite the coronavirus-led risk aversion in the traditional markets. That’s likely because investors used the cryptocurrency as a source of liquidity.

When panic sets in the financial markets, investors tend to liquidate assets and hold cash, preferably the U.S. dollar, which is the global reserve currency.

Hence, it’s not surprising the dollar index, which tracks the value of the greenback against major currencies, has gained nearly 7 percent this month, according to data provided by the crypto derivatives research firm Skew. Gold, too, is reporting a month-to-date gain of over 6 percent.

Looking forward

There is general consensus in the market that bitcoin will regain poise in the second quarter, courtesy of U.S. monetary policies.

While the Fed has recently announced an unlimited easing program that will boost supply, bitcoin is set to undergo its miner’s reward halving in May. The process will reduce the daily issuance, or supply, of coins by 50 percent.

See also: Bitcoin Halving, Explained

“Bitcoin is going to experience its third block halving in Q2. We’re weeks away from an event that has, historically, led to monumental economic growth for Bitcoin and other cryptocurrencies,” Brandon Mintz, CEO of the bitcoin ATM provider Bitcoin Depot, told CoinDesk.

Meanwhile, Chris Thomas, head of digital assets at Swissquote Bank, believes buying dips and accumulating is the way to trade in the second quarter, because bitcoin has historically performed well in the months following the halving.

Some
analysts expect the massive monetary and fiscal lifelines launched by the
central banks and governments across the globe to strengthen bitcoin’s appeal
as an inflation hedge and a haven asset.

“The insanity that’s guiding today’s public markets is making bitcoin seem quite civilized in comparison, and while short term confidence in Bitcoin was shaken, its long-term fundamentals as an asset class have been strengthened by the speed and quantum of its recovery,” said Jehan Chu, co-founder and managing partner at Kenetic Capital.

“I’m looking forward to continued volatility and the possibility of another move down below $6,000 but ultimately recovery and return to $8,000-$9,000 levels in the second quarter,” Chu added.

Confidence seems to have returned to the bitcoin market, as indicated by the notable drop in exchange deposits over the last 2.5 weeks. The slowdown in inflows to exchanges suggests there are now fewer sellers looking to offload their holdings into the rising market.

The derivatives market, however, is biased bearish. For instance, the futures market is in “backwardation” – a condition where the futures price of a commodity is lower than the spot price today.

“Backwardation in the futures market indicates that traders are expecting a price to decline slightly over the coming months,” Luuk Strijers, COO of crypto derivatives exchange Deribit, told CoinDesk.  

See also: Crypto Markets Can Never Close, and That’s a Good Thing

Strijers added that miners are also generating selling pressure right now, with bytetree.com data showing they are selling more bitcoin than they produce, and are not awaiting the upcoming halving.

However, ByteTree’s founder and chairman, Charles Morris, believes that’s a bullish sign. After all, miners wouldn’t hit their own profitability by selling into a market that lacks the strength to absorb the extra supply and fuel a price crash.

What the charts say

monthly-chart-5

From a technical analysis standpoint, the monthly close is pivotal.

Bitcoin turned lower from $10,500 in February, establishing a second bearish lower high (marked by arrows) on the monthly chart.

The pattern would gain credence if prices settle under the December low of $6,425 on Tuesday’s close. That would boost the probability of a re-test of the 50-month average support at $5,200.

On the higher side, a convincing move above $7,000 is needed to confirm a bullish reversal on the weekly chart, as discussed Monday.

Disclosure: The author holds no cryptocurrency at the time of writing.

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