FX.co ★ Bitcoin's dead cat bounce: a brief glimmer before continued weakness

Donald Trump's mention of a strategic reserve seemed to bring Bitcoin back to life. In reality, however, the BTC/USD rally in early March turned out to be nothing more than a dead cat bounce. Buyers' attempt to restore the bullish trend ended in failure as investors began to doubt the viability of using other tokens.

The crypto winter seems to be back. In February, Bitcoin recorded its worst performance since 2022, when it was in deep depression. However, the launch of crypto ETFs, coupled with Trump's promises of a more lenient approach to the industry and the creation of a strategic reserve, pushed BTC/USD to record highs.

Bitcoin's monthly dynamics

Since then, the token has lost nearly a third of its value due to a deteriorating macroeconomic environment and global risk appetite, capital outflows from specialized exchange-traded funds, the largest theft in cryptocurrency history, and investor disappointment with Trump's promises.

While investors in late 2024 were still hopeful that fiscal stimulus and deregulation would boost the US economy, by early 2025 their views had shifted drastically. The most likely scenario is stagflation, where GDP barely grows while inflation accelerates. Such an environment is extremely unfavorable for US stock indices. Their decline signals a deterioration in risk appetite, dragging the BTC/USD pair down with it.

It comes as no surprise that Bitcoin-focused ETFs saw a record $3.3 billion outflow in February, the largest in the funds' history.

Capital flow dynamics in Bitcoin ETFs

The hack of the ByBit exchange and the theft of $1.5 billion in Ether only fueled the panic. The fear of losing money due to low security levels prompted investors to withdraw their funds from crypto systems, accelerating the BTC/USD decline.

Only when Donald Trump announced on social media that the strategic reserve would include not just Bitcoin and Ether but also tokens such as XRP, SOL, and ADA, did cryptocurrencies seem to regain some footing. Investors had almost forgotten about the Republican's promised initiative, and then this happened!

Unfortunately, the BTC/USD rally proved to be short-lived. Initially, it was assumed that the strategic reserve would include confiscated government Bitcoin. All other digital assets would have to be purchased, but Congress has already rejected this idea. It is quite possible that Trump's promises will ultimately prove meaningless. If that happens, a sell-off in the crypto markets is likely to gain further momentum.

Technical outlookOn the daily chart, BTC/USD is experiencing a correction from the bullish trend, which risks evolving into a full-fledged bearish trend. Only a break above the 91,300 level could change the outlook. Therefore, going short remains the preferred strategy until Bitcoin returns to this level.