Downside pressures on bitcoin and the broader cryptocurrency market are starting to become exhausted, which could lead to a more supportive trading environment, according to Coinbase analysts.
Coinbase’s Weekly Market report, released on Friday, described how certain technical factors that had been exerting downside pressure on bitcoin specifically and the broader crypto market are beginning to wane.
“Many technical factors pressuring crypto performance to the downside are starting to be exhausted, in our view, which may give way to a more supportive trading environment in the weeks ahead,” Coinbase analysts said.
According to the report, one significant development that has depleted much of the downward pressure is the completion of FTX’s bankruptcy estate selling its substantial GBTC holdings. The Coinbase analysts referenced a recent CoinDesk report, which mentioned the bankruptcy estate disposing of 22 million GBTC shares.
Macro factors becoming more relevant
To strengthen the argument that a more supportive trading environment is beginning to develop, the report added that net inflows into U.S. spot bitcoin ETFs have averaged over $200 million a day in the past week, bringing the total net inflows to $1.46 billion since January 11.
“Consequently, we expect macro factors to become more relevant for the digital asset class in the weeks ahead, which could be supportive for performance,” the analysts said.
Possibility of rate cuts in May
The Coinbase report highlighted the U.S. Federal Reserve’s recent rate decision press conference, during which it was announced that there would be a postponement of the central bank’s quantitative tightening program to the next Federal Open Market Committee meeting on March 19-20. Coinbase said this suggests the Fed’s monetary easing cycle could likely start on May 1, while an end to the central bank’s balance sheet reduction plans could start in June.
The report said the Fed’s rate announcement speech on Wednesday suggested an increased likelihood of a soft landing for the U.S. economy after the central bank’s most recent rate hike cycle.
“In the U.S., the likelihood of a soft landing seems higher than it was a few months ago with the economy ostensibly making only minimal trade offs between activity and inflation. Core PCE inflation, the Federal Reserve’s preferred measure of prices, at 2.7% year-on-year is trending in line with their 2% long-run target, and the assortment of recent economic indicators has been fairly resilient,” Coinbase analysts said.
The report added that the combination of depleting downside pressures on bitcoin, and the possibility of a rate cut coinciding with the bitcoin halving, “could potentially prop up both bitcoin and other tokens in Q2, 2024.”
The world’s largest cryptocurrency by market capitalization increased 1.5% over the past 24 hours to $43,126 at 11:36 p.m. ET, according to The Block’s Price Page.
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