Bitcoin Drops 3.5% to $84,120 Amid Liquidity Concerns

Bitcoin's price experienced a downturn on March 28, dropping 3.5% to an intraday low of $84,120. This decline occurred at the intersection of a descending trendline and the upper range of an ascending channel pattern on the daily chart. Currently, Bitcoin is trading below the 200-day exponential moving average (EMA), and a close below this key indicator could trigger further downward movement.

Macroeconomic conditions, particularly liquidity, are playing a significant role in Bitcoin's price movements. According to Capital Flows, a macroeconomic market analyst, Bitcoin could correct to the $72,000-$75,000 range if liquidity conditions remain unchanged. Macro liquidity refers to the total capital available in the financial system that can flow into risk-on assets like equities and cryptocurrencies. This liquidity is influenced by factors such as interest rates, Federal Reserve policies, and overall market conditions.

Ask Aime: What caused Bitcoin's price drop on March 28?

Capital Flows noted that Bitcoin is showing a greater convergence with traditional risk assets but remains at the periphery of the risk curve. For capital to flow back into Bitcoin, investors would need to shift their focus from less risky assets, such as bonds, to riskier assets like Bitcoin or low-quality banks in the Russell index. The analyst stated that the current macro liquidity backdrop is neutral, with rates having come down marginally but the carry trade continuing to create risk for assets.

In contrast, other analysts have suggested that the rise of the Global M2 money supply could potentially trigger a Bitcoin rally. The Global Liquidity chart, which monitors M2 growth from major central banks, has historically correlated with Bitcoin's price movements. According to a crypto commentator, the predictive correlation between M2 supply and Bitcoin indicates a potential rally around May 1, which might last two months.

However, it is important to note the distinction between macro liquidity and global M2 growth. While M2 measures the total money supply, macro liquidity highlights the ease with which capital can flow into risk assets. Even if the M2 money supply rises, macro liquidity might remain the same if the money is allocated to low-risk assets. Capital Flows emphasized that the quantity of money in the system is not expanding as it used to.

Bitcoin's recent rally created a CME gap between $84,435 and $85,000. The CME Bitcoin futures gap indicates the difference between the closing price of BTC CME futures on Friday and the opening price on Sunday evening. These gaps typically get filled, and traders approach these levels as points of resistance or support, depending on the market structure. Bitcoin's price filled the CME gap before its daily close on March 28, which could lead to a short-term bounce. This gap is also aligned with a retest of the lower range of the ongoing ascending channel pattern.

Some traders have pointed out the possibility of a long-term correction below, forming new lows in 2025. Immediate support is seen at $76,700, which might be a minor retest region before prices drop below $74,000. One technical analyst noted that Bitcoin is in a "do or die" situation, either holding the current support level or failing and targeting liquidity near $80,000 on a retest.