Bitcoin entered March on strong momentum, rising to a high of $76,000 and positioning itself for the first bullish monthly close in half a year. However, that story has since unraveled.
The early optimism fueled by geopolitical developments involving the US, Iran and the Gulf States has given way to macro-driven caution. At the time of writing, Bitcoin [BTC] traded around $66,126, holding key levels but showing signs of vulnerability as sentiment shifts.
Bond yields are rising and the screws are being tightened
US 10-year Treasury yields have emerged as a central driver of market direction. In fact, at the time of writing, the price action seemed to suggest that rates could be consolidating within a bullish flag pattern, which is usually a harbinger of further uptrend.
A confirmed breakout could push yields towards the 5.0% level or higher, returning to 2023 highs. Such a move would likely accelerate capital rotation out of risky assets.
Higher yields tend to enhance the appeal of fixed income instruments, drawing liquidity away from speculative markets. For Bitcoin, this dynamic has historically translated into downward pressure.
For example, between October 2021 and December 2022, returns rose from 1.45% to 3.90%. While Bitcoin fell from $67,000 to $16,256 during the same period.
If interest rates rise towards 5%, Bitcoin could return to its next demand zone between $58,632 and $55,302.
ETF flows reverse as US investors reduce risk
Institutional sentiment is also starting to turn in the US. In fact, Spot Bitcoin exchange-traded funds have recorded their first meaningful outflows in five weeks – signaling a shift towards a risk-free stance.
About $296 million left these funds last week, reversing some of the $2.12 billion built up over the past four weeks. The shift suggested that recent buyers may begin unwinding their positions as macro risks increase.
The data from late February best reflected this trend. Between February 26 and 27 alone, outflows reached approximately $396.7 million, underscoring how quickly sentiment can change.
With only a few trading sessions left in March, continued selling now could reinforce the bearish month-end close.
The oil boom is fueling concerns about inflation
Here the inflation background remains an important variable. Crude oil prices have risen sharply, putting pressure on an already fragile macro environment.
Brent crude has already risen from around $75 at the start of the month to around $106, while WTI oil was trading around $101 at the time of writing. The move hinted at supply disruptions and geopolitical tensions, both of which risk inflation remaining at elevated levels.
Persistently high energy prices limit the likelihood of monetary easing in the short term, keeping interest rates high and financial conditions tight.
In fact, recent analysis suggests that oil-fueled inflation is a direct headwind for Bitcoin, especially amid disruptions in the Strait of Hormuz. While market analysts argue that Bitcoin could act as a hedge, current price action suggests it remains closely tied to broader liquidity conditions.
Final summary
- US 10-year Treasury yields are nearing a breakout, raising the risk of a broader market repricing.
- US investors have started divesting from Bitcoin as oil-driven inflation continues to complicate the macro outlook.