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Bitcoin is up a whopping 27 percent over the past 5 days, with this scorching-hot bullish price action underpinned by massive safe-haven inflows. However, even though the world’s premier cryptocurrency has recovered the $26,000 price level after a hiatus of nine months, uncertainties persist as to this nascent bullish wave.

Bitcoin and the 200-week Moving Average

Bitcoin’s 200-week moving average has often acted as a critical psychological level, dictating the medium-term price action of the world’s premier cryptocurrency.

Last few times #BTC either lost the 200-week MA as support or rejected from it:

• -32% upon loss of 200 MA as support

• -22% rejection from 200 MA$BTC is again near the 200 MA

Downside caused by 200MA is getting shallower

200MA is weakening as resistance#Crypto #Bitcoin pic.twitter.com/1N91EacOcU

— Rekt Capital (@rektcapital) March 14, 2023

Ahead of today’s US CPI report, Rekt Capital noted that Bitcoin’s 200-week moving average was weakening as a potent resistance level.

#BTC has a chance to make a new Higher High this week

Weekly Close above ~$24300 and $BTC would likely confirm a breakout to new Yearly Highs#Crypto #Bitcoin pic.twitter.com/O1vJ8pzOWu

— Rekt Capital (@rektcapital) March 14, 2023

In order to confirm a breakout from its current consolidation zone, Bitcoin has to form a weekly close above the $24,300 price level.

Bitcoin has breached its 200-week moving average

Well, moments after the US CPI report for the month of February was released, Bitcoin breached all major resistance levels, including the 200-week moving average, to trade at the $26,000 price level. Should the cryptocurrency manage to hang on to this level through the current week, a breakout will have been confirmed, paving the way for Bitcoin to turn the critical 200-week moving average into a support level.

Safe-Haven Inflows and Goldilocks US CPI Report

Bitcoin finally managed to prove its detractors wrong over the weekend when it registered phenomenal strength as the US financial system buckled under the strain of a growing number of mid-sized banks failing in the US. This development has restored faith in Bitcoin as a safe haven asset and a digital alternative to metallic gold.

For those who might be unaware, US regulators took over the Silicon Valley Bank (SVB) on Friday when it failed to raise additional capital. The bank had been crippled by growing deposit losses as clients moved their funds to greener pastures in search of higher yields. Concurrently, the vast majority of the bank’s assets had been invested in high-duration debt securities without adequate hedging. Since such securities lose value in a rising interest rate environment, SVB had to endure a dramatic increase in unrealized losses as it liquidated these under-water investments to meet growing deposit withdrawal requirements. The end result was a negative net asset balance for the SVB, prompting the regulators to shut down the dysfunctional bank.

Over the weekend, the FDIC, US Treasury, and the Federal Reserve worked together to try to restore confidence in the US banking sector. First, the regulators pledged to protect all depositors, including uninsured ones, at SVB and the Signature bank – another financial institution that has now been shut down. Moreover, the Federal Reserve launched a new program, dubbed the Bank Term Funding Program (BTFP). Under this program, distressed banks can post eligible collateral (Treasuries and agency securities) at par value and receive funding with maturities of up to one year. Since banks can post their underwater debt securities at par value, the program is intended to sidestep the growing problem of unrealized reserve losses at a number of banks in the US. Moreover, the program will be backed by $25 billion in funds from the US Treasury’s Exchange Stabilization Fund (ESF). These funds will be used to indemnify the Federal Reserve should any bank default on its BTFP loans.

The FDIC's 130bln insurance fund *currently* has enough resources to cover >$1tln of depositors if needed.

That's because the FDIC doesn't pay out depositors entirely. It only pays out the incremental amount needed to make a failed bank's depositors whole. Thread.

— Bob Elliott (@BobEUnlimited) March 14, 2023

While some think that these two measures are sufficient to restore stability in the US banking sector, others argue that the damage has already been done, hence, necessitating safe-haven inflows into Bitcoin and gold. This line of thinking goes as follows: even though the US Treasury and FDIC have practically shown their intent to protect all depositors, bank clients are not willing to lose access to their funds for even a short period of time, as would be the case if a bank does go under.

".. JPMorgan Chase & Co., the largest US bank, alone received billions of dollars in recent days, and Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. are also seeing higher-than-usual volume .."@business $JPM $BAC $WFC https://t.co/LAjjNdnvsw

— Carl Quintanilla (@carlquintanilla) March 14, 2023

This phenomenon is driving inflows toward the very large banks that are generally deemed to be in the too-big-to-fail category.

GS: "It will be hard to be completely confident in the near term that Sunday’s intervention will halt the pressure on smaller banks, who play a large macroeconomic role and could become considerably more conservative in their lending."

— zerohedge (@zerohedge) March 13, 2023

Moreover, with US Treasuries now giving yields in excess of 4 percent on an annual basis, most banks will have to increase the interest rate that they offer on deposits, thereby impairing their profitability. This will also result in a tightening of lending standards, resulting in lower levels of loan creation. Hence, financial conditions are expected to tighten dramatically going forward.

BREAKING: February CPI shows inflation at 6.0%, in-line with expectations of 6.0%.

Core CPI shows inflation at 5.5%, in-line with expectations of 5.5%.

We have collapse in the regional banking system with 6% inflation.

This is a costly fight against inflation.

— The Kobeissi Letter (@KobeissiLetter) March 14, 2023

Against this backdrop, today’s US CPI report for the month of February was being billed as the most important variable for the US Federal Reserve’s decision to either raise interest rates next week or hit the proverbial pause button. Here, the report was largely in the goldilocks zone, printing in line with expectations.

The CPI core services ex shelter (Powells favourite gauge) prints at 0.43% - highest since September.

This is not going to make life easier for the Fed.

— AndreasStenoLarsen (@AndreasSteno) March 14, 2023

Nonetheless, do note that the US Services CPI ex-housing printed at 0.43 percent, the highest since September 2022. The Federal Reserve has identified this measure as an important criterion for gauging the overall inflation level. Overall, however, the report indicated moderating inflation pressure, which generally supports risk assets such as Bitcoin.

Historically, #BTC has broken out past its Macro Downtrend around 366-396 days before the Halving

Right now, it is ~384 days before the Halving$BTC #Crypto #Bitcoin pic.twitter.com/eEAcakXDkx

— Rekt Capital (@rektcapital) March 14, 2023

We noted a while back that we expect Bitcoin to bottom out in Q1 2023. For now, this thesis remains intact.