Bitcoin's brief rally halted by economic warnings and geopolitical tensions

Bitcoin (BTC) experienced a brief rebound, gaining 6.8% between March 5 and March 6, briefly reclaiming $92,000. However, the upward trend was short-lived as the S&P 500 fell 1.3%, triggered by warnings from the Philadelphia Federal Reserve President about the US economy. The warning highlighted growing evidence of stress in the consumer sector, particularly among lower-income groups. This economic uncertainty, coupled with rising tensions in Ukraine and concerns over potential US digital asset strategic reserves, kept Bitcoin’s price below $95,000.

Traders tend to increase their cash and cash-equivalent positions during times of economic uncertainty, regardless of whether the causes are socio-political or related to the outlook for specific sectors. For Bitcoin to break above $95,000, a scenario of reduced uncertainty is required, even if the outcome is higher inflation, which is generally positive for scarce assets due to its impact on fixed-income instruments.

The escalating war tensions and fears of a recession, fueled by various factors, pushed the S&P 500 volatility index (VIX) to its highest levels in 11 weeks. This indicates that investors are more risk-averse than usual. Historically, under such conditions, Bitcoin has performed poorly in the days immediately following local peaks in the VIX indicator. Currently, the S&P 500 volatility index stands at 24, significantly higher than its level of 16 two weeks ago and closer to its highest point in 7 months.

Worsening economic conditions are likely to lead to an expansion of the monetary base as central banks are compelled to stimulate their economies. On March 6, China hinted at having more room to act on fiscal policy amid domestic and external uncertainties, while the European Central Bank stated that monetary policy is becoming less restrictive. An increase in money circulation is generally favorable for Bitcoin, whether it is viewed as a risk-on asset or a hedge instrument. Lyn Alden, a macroeconomics analyst, noted that Bitcoin moves in the direction of global liquidity 83% of the time in any given 12-month period, which is higher than any other major asset class.

However, Bitcoin is not immune to short-term volatility driven by idiosyncratic events or internal market dynamics, as seen with the speculation surrounding the US digital asset strategic reserve. For