Market Wrap: Bitcoin Faces Long Odds in Bid for Sixth Straight Monthly Gain

Bitcoin rose 7%, reversing the past few days' losses, as some blockchain data turned bullish and new signs emerged of increasing cryptocurrency acceptancer by Wall Street firms including Goldman Sachs, Citigroup and Fidelity Investments.

Bitcoin prices surged 36% in February, marking the cryptocurrency's fifth consecutive monthly price increase, the first time that's happened since mid-2019. A six-month stretch of gains hasn't been seen since the period of November 2012 through April 2013.

So the odds might seem stacked against a monthly gain in March, which would match the seven-year-old streak. But the first day of March pushed bitcoin in that direction amid signs that more big institutions are moving into cryptocurrencies.

A top executive for the giant U.S. money manager Fidelity Investments compared bitcoin with gold, and the investment bank Goldman Sachs said it will relaunch its crypto trading desk after a three-year hiatus. Citigroup, one of the biggest U.S. banks, wrote that bitcoin was at a “tipping point” as more institutions adopt the cryptocurrency.

Google Finance added a data tab on cryptocurrencies. And Michael Saylor’s MicroStrategy, which has been a big bitcoin buyer for its corporate treasury, added another $15 million worth.

Read More: Fidelity’s Head of Global Macro Says Bitcoin May Have Place in Some Portfolios

The sudden move higher following last week's 21% plunge – the biggest market correction since March 2020 – was foretold by some traders and analysts who were seeing increasingly bullish signs in blockchain data.

One such indicator, the spent output profit ratio (SOPR), represents the profit ratio of coins moved on the blockchain. If the metric is above 1, that means most holders could sell their bitcoin at a profit. But when it slips below 1, more traders would be selling at a loss, seen as unsustainable since many holders are reluctant to accept anything but profits.

And the metric dropped below 1 on Saturday for the first time since last September, according to data from Glassnode. The implication is that investors would refuse to sell until prices rose.

Read more: Why $1 Million Bitcoin Is Coming

“The SOPR metric has been reliable for ‘buy the dip’ opportunities in bull markets,” Norwegian blockchain firm Arcane Research wrote in a tweet on Monday.

“In a bull market, investors are more inclined to take profit until the stop-profit point and refuse any stop-loss orders,” crypto analytics account BeatleNews on Chinese-language based social media platform Weibo, wrote in a post Sunday night, “When SOPR is below 1, the available coins for sale will decrease and it becomes easier for prices to rebound.”

On the price chart, as bitcoin dropped near $43,000 on Sunday, it was just above a key supporting price range of $40,000-$42,000, as mapped out by Singapore-based crypto trading firm QCP Capital in its Telegram channel on Feb 22. (See chart above.)

The price range represents "the hedge fund trading level corresponding to the parabolic trendline,” QCP Capital wrote. “This has to hold to preserve the strong bullish momentum, and is now the bull and bear line in the sand.”

Bitcoin’s futures markets continued to cool down over the past weekend, a sign traders were reducing risk and deleveraging, and possibly resetting for a fresh bull run. The perpetual futures funding rate – the average cost of holding long positions on major exchanges – declined to 0.006% per eight-hour period Saturday, from 0.125% on Wednesday, according to Glassnode.

The perpetual futures funding rate in the past three months, as shown on Glassnode’s chart, rose during each price surge and followed with a correction after it climbed to a new peak.

A ​recovery in U.S. stocks on Monday may also signal a renewed appetite among investors for risky assets, which would include bitcoin. The cryptocurrency's sell-off last week came as a rise U.S. Treasury bond yields prompted concerns the Federal Reserve might soon tighten monetary policy. Bitcoin has benefited over the past year from unusually loose monetary policy.

The yield on 10-year Treasury notes, the benchmark borrowing cost in global debt markets, dropped to 1.43% on Monday, which has eased some investors’ nerves on potential tightened monetary policies.

Read more: Investing in Cryptocurrencies Is ‘Not Prudent,’ Says New York Attorney General

As crypto trading data firm Skew wrote in a tweet last Friday, the correlation between stocks and bitcoin rose last week because both markets lost altitude as bond yields climbed.

"Let's see how this evolves," Bendik Norheim Schei, head of research at Arcane Research, told CoinDesk. "A break above $52,000 would be encouraging but I would not be surprised if we get some more ranging. It's been a good start of the week in traditional markets and if last week's uncertainty is over, I expect bitcoin to continue up as well."

Ether (ETH), the second-largest cryptocurrency by market capitalization, was up Monday, trading around $1,520.44 and climbing 7.26% in 24 hours as of 21:00 UTC (4:00 p.m. ET).

Ether continued to move in tandem with bitcoin, yet a key market indicator has shown some potential risks of ether’s price movement going forward.

According to Skew, Grayscale Ethereum Trust (ETHE) premium flipped negative last week, meaning the trust was trading at a discount to the spot price, the first time ETHE ever closed in negative territory.

“Our worry is the many players using Grayscale Bitcoin Trust and ETHE as part of their cash-and-carry strategy and whether a sustained discount there will have severe knock-on effects across the curve,” QCP Capital wrote in its Telegram channel on Sunday. “This is our risk going into March.”

Grayscale is owned by Digital Currency Group, CoinDesk’s parent company.

Read more: Cardano Becomes a Multi-Asset Blockchain With Today’s Hard Fork

Digital assets on the CoinDesk 20 are mostly in green Monday. Notable winners as of 21:00 UTC (4:00 p.m. ET):

Notable losers:

Equities:

Commodities:

Treasurys: