Crypto Market Could Face Some Short-Term Headwinds, Coinbase Says

• Crypto markets could face macro and technical headwinds in the near term, Coinbase says.
• Liquidity could be impacted by quarter-end rebalancing.
• The world’s largest cryptocurrency is expected to trade in a narrow range until next month’s halving event.

Despite bitcoin (BTC) hitting a new all-time high, cryptocurrency markets are faced with some macro headwinds and negative technical factors in the short term, which may limit further gains, Coinbase (COIN) said in a report on Friday.

“The short covering move that contributed to the initial upside now appears to be exhausted, but U.S. spot bitcoin ETFs continue to be a meaningful anchor for bitcoin demand,” analysts David Duong and David Han wrote.

In previous cycles, “liquidity conditions” were the main setback to price momentum, but that doesn’t appear to be the case anymore. Still, these support drivers are “likely to meet some important macro and technical headwinds in the weeks ahead,” the authors wrote.

The Federal Reserve is expected to let the Bank Term Funding Program (BTFP), which was used to support U.S. regional banks, expire on March 11, the report said, adding that “this may close an arbitrage opportunity for banks but at the expense of potentially re-introducing vulnerabilities into the financial system.”

Additionally, the note said that a drop in fund managers’ cash reserves coupled with quarter-end rebalancing may tie up liquidity.

Due to these offsetting dynamics, Coinbase said the most likely scenario is for bitcoin to trade inside a narrow range until the “next idiosyncratic event - the bitcoin halving in mid-April.” The quadrennial reward halving will cut bitcoin mining rewards by 50%.

Coinbase notes that exchange-traded funds have changed bitcoin’s market dynamics, undermining the usefulness of studying previous halving cycles. “The cumulative net growth in BTC held by ETFs has outpaced that generated by miners by nearly threefold,” the report added.

Read more: Bitcoin Is Unlikely to Match Gold’s Allocation in Investors’ Portfolios in Nominal Terms: JPMorgan