Bitcoin ushers in a “small spring”, will the rising trend continue in the second quarter?

At the beginning of the second quarter, the crypto market ushered in a "small spring". According to Bitpush terminal data, Bitcoin broke through $29,200 for the first time since June 10, 2022 on Monday, with a 24-hour increase of nearly 4%. This is a strong rebound after the $23,500 mark in early March, and the increase is more than 72% compared with the beginning of this year.

There was no major news behind Monday's rise. On Wednesday, the U.S. will release the Consumer Price Index (CPI) for March, one of the most important economic data before the Fed's early May meeting. The FOMC meeting minutes will be released later in the day, revealing more details of the Fed's forecasts and considerations for the latest interest rate decision. Many market observers predict that the U.S. central bank may end its more than one-year interest rate hike campaign at this meeting, which is good news for Bitcoin.

So, will Bitcoin continue to rise in the second quarter? Here are several factors that investors and traders need to consider.

History shows seasonal increases

A bullish implication is that Bitcoin is entering a historically strong seasonal month for gains. According to a review of data, BTC has achieved positive returns in April six times over the past 10 years, with an average return of more than 17%. Bitcoin's strengthening correlation with U.S. stocks also makes a strong case for bullishness. Over the past 10 years, the S&P 500 has achieved six gains in April, with an average gain of 2.6%.

However, one factor that could curb seasonal bearishness is the emergence of whale sellers. BitTorrent previously reported that the U.S. government intends to sell 41,000 bitcoins it confiscated from the Silk Road dark web. Assuming all are sold at today's market price, $1.6 billion worth of BTC supply will flow into the market.

The collapse of CeFi (centralized finance) drives the Bitcoin narrative

While the collapse of CeFi (centralized finance) in 2022 depressed the crypto market for a few months, it is now driving the BTC narrative. That is, everything that happened last year once again proved Bitcoin's fundamental thesis and value proposition.

Now, investors are more convinced that Bitcoin provides a reliable, decentralized, and transparent foundation for the financial system, and building centralized and irresponsible products on it deviates from this belief. The 2022 crypto crisis destroyed FTX , Alameda Research , Celsius Network, Three Arrows Capital , and many other companies. It also dealt a devastating blow to Gemini Trust Company, Digital Currency Group , etc. But the strong market rebound proved that by January, all these negative factors had been digested by the market.

Runs on three major U.S. banks

Crypto markets cheered when three traditional banks with crypto exposure collapsed in March. As regulators took over, Silicon Valley Bank customers lined up to get their deposits, while the price of Bitcoin surged from around $20,500 to $25,700 in four days.

The collapse of Silicon Valley Bank, Signature Bank , and Silvergate Bank became a catalyst for BTC, and a banking panic also occurred in Europe. Investors reacquainted themselves with the crypto industry after the collapse of CeFi.

Crypto analyst Alvaro Sanchez wrote that bank runs have made the consensus of Bitcoin supporters stronger: "For cryptocurrency investors, the banking panics in the United States and Europe have confirmed their belief that all financial intermediaries will disappear in the future and there will be a decentralized system in which everyone can transfer funds without the need for banks."

Bitcoin and Stock Market Correlation

Data from The Block shows that cryptocurrencies keep pace with the macro market, and the correlation between Bitcoin and stocks has increased during 2022. During periods of rising stock prices, cryptocurrencies are more likely to rise in tandem, and the same is true when they fall.

From a chart perspective, the only difference between the cryptocurrency trading market and the stock market is that cryptocurrencies in a portfolio fluctuate like stocks, but with leverage. The correlation between Bitcoin and Nasdaq stock prices has persisted through the New Year's rally, the consolidation period, and the March rally.

Additionally, the increased sensitivity of crypto assets to technology stocks and macroeconomic data may stem from institutional investors. A recent research paper published by Georgetown University stated: “The recent increase in the correlation coefficient between the crypto asset market and the S&P 500 index may reflect the increased participation of institutional investors.”

Bitcoin adoption continues

Bitcoin adoption is growing rapidly around the world in 2023, and while many of Bitcoin's early adopters are from developed countries such as the United States, adoption is also growing in developing countries. The government of President Nayib Bukele of El Salvador has pushed for Bitcoin to become legal tender, and the country recently repaid the first of two $800 million bonds, suggesting that its finances have benefited from Bitcoin's recent rally.

BTC fundamentals and community sentiment

As the second quarter of the year begins, BTC fundamentals are running strong. Bitcoin’s hash rate surged to another all-time high at the end of the first quarter. By the end of March, the network hash rate reached 350 million TH/s.

The business model of miners is most vulnerable to market downside risks, and can also earn very high returns in market upcycles. Miners earn income through block rewards and transaction fees, and they may be the most informed participants in the market, so an increase in hash rate is a leading indicator of future market heat.

Liquidity on exchanges is also low, which means holding sentiment is high. Declining supply, widening order spreads, and surging prices are signs of a bull run.

Institutional investors are optimistic

In the middle of the February rally, SeekingAlpha reported that Bitcoin price gains were driven primarily by institutional investors.

A survey report on banks by Brown Brothers Harriman & Co. showed that institutional investors are generally reluctant to invest, but interest remains strong, with 48% of respondents planning to add cryptocurrency ETFs to their investment exposure in 2023.

In March, Fidelity Crypto opened up Bitcoin and Ethereum trading to millions of retail investors. In addition, the financial services giant offers them commission-free services on the app.

Meanwhile, Larry Fink , CEO of investment management giant BlackRock , made bullish remarks about cryptocurrencies and blockchain in his annual letter to shareholders. Fink said: "At BlackRock, we continue to explore the digital asset ecosystem, especially in areas that are most relevant to our clients, such as permissioned blockchains and the tokenization of stocks and bonds."

Crypto regulation is a mixed bag

The regulatory environment for cryptocurrencies is mixed, making it difficult to rate it as bullish or bearish. On the one hand, digital asset platform Bakkt completed its $155 million acquisition of trading infrastructure provider Apex Crypto, one of the largest deals in the crypto space since the bear market began in mid-2021.

On the other hand, in the United States, crypto companies are facing increasing regulatory scrutiny, and the U.S. Securities and Exchange Commission ( SEC ) has targeted several crypto companies, such as issuing Wells notices to Coinbase and charging Kraken with the exchange's staking program. Bittrex Global is shutting down its U.S. operations due to regulatory concerns. Bittrex said that the U.S. government's legal actions against Kraken, Coinbase, Ripple and Binance have made the U.S. competitive environment unfair.

Therefore, Bitcoin’s price movement is influenced by many factors, including macro data, market sentiment, major global events and regulatory changes. As of the time of publishing this article, the price of Bitcoin is $29,139.