Market Wrap: Bitcoin Decouples From Stocks Ahead of Seasonally Weak March

Bitcoin (BTC) and other cryptocurrencies ended February with a sharp rebound, which extended into March, albeit at a slower pace.

It appears that bearish sentiment is starting to fade despite ongoing geopolitical risk. For example, the bitcoin Fear & Greed Index, which measures the mood among crypto traders, rose from "extreme fear" territory and is back around neutral levels.

Meanwhile, bitcoin's average trading volume across spot exchanges reached the highest level since December on Tuesday, which could be an early sign of capitulation among sellers. The ratio of buy volume relative to sell volume also ticked higher over the past week, suggesting renewed bullish activity.

Still, other market indicators are neutral as some buyers remain on the sidelines.

Traders in bitcoin's perpetual swaps market are "not convinced by the recent rally," according to a report by Arcane Research. "Despite yesterday’s liquidation uptick, the perpetual swap open interest remained fairly stable, falling from 223,000 BTC to 219,000 BTC, suggesting that traders are actively re-adjusting risk," the firm wrote.

Historically, March tends to be a difficult month for bitcoin and equities. Analysts expect macroeconomic and geopolitical risks to linger, which could cause short-term volatility. At a later point, price action could stabilize as the probability of positive BTC returns increases over the next few months.

February was a volatile month in crypto markets, triggered by macroeconomic and geopolitical risks. Still, there were some clear winners such as XRP, which outperformed the CoinDesk 20 crypto list with a 29% return. The CoinDesk 20 filters thousands of cryptocurrencies by market capitalization and trading volume across exchanges.

Ethereum classic (ETC) and bitcoin cash (BCH), both spin-offs of their respective blockchains, also posted strong gains in February. Meanwhile, bitcoin experienced a 12% gain, driven by the sharp price recovery over the past week.

Other alternative cryptocurrencies such as Chainlink's LINK, Algorand's ALGO and Cardano's ADA declined more than 8% in February. Bitcoin's outperformance relative to altcoins suggests a lower appetite for risk among crypto investors.

Bitcoin also outperformed traditional markets in February, albeit with greater volatility.

The chart below shows bitcoin's leap toward the end of the month, which was well ahead of gold's 5% gain and the S&P 500's 3% loss.

Bitcoin's risk-adjusted return was also greater than the S&P 500 stock index over the past 30 days, but has lagged stocks over the past three months, according to data from IntoTheBlock. That means crypto investors experienced greater price swings to generate returns versus traditional investors.

On average, over the past nine years, bitcoin has produced negative returns in March, according to data from StockCharts. While past returns are no guarantee of future returns, investors are still bracing themselves for economic and political uncertainty next month.

"This is a very difficult environment for risky assets," Edward Moya, an analyst at Oanda, wrote in an email to CoinDesk. Inflation will likely become the focal point among investors next month, which could pressure central banks to be more aggressive with tightening monetary policy, according to Moya.

"If financial markets grow nervous that the [U.S.] Federal Reserve will become more aggressive in removing accommodation, bitcoin could settle back to the lower boundaries of its widening trading range just below the $40,000 level," Moya wrote.

Still, Moya expects downside could be limited given the recent stabilization in crypto prices.

Digital assets in the CoinDesk 20 ended the day higher.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.