Bitcoin price stumbles amid investors’ aversion to risk assets, but there is a silver lining

The U.S. stock market is approaching a crucial turning point as uncertainty over inflation rises after hotter-than-expected economic data released in February. Despite mounting investor worries, the economy is showing signs of resilience that could protect it against a significant downside move. 

The escalating risk-off sentiment in the market is also creating volatility for Bitcoin (

A possible bear trap?

As the Fed prepares for renewed hawkishness, there is more pressure on the upcoming debt limit crisis of the U.S. Treasury. Since mid-2022, when the Fed started quantitative easing, the U.S. Treasury has facilitated backdoor liquidity injection. However, the added liquidity from the Treasury will be drained entirely by June 2023.

The market’s optimism earlier this year was probably related to the assumption that the Fed would start easing interest rates by the time the Treasury’s funds dry out. However, if inflation grows again and the Fed continues increasing rates, the economy will be in a precarious position by June, with expensive credit and limited liquidity from the Treasury.

Still, as Edwards mentioned, “there is no doubt risk in the market,” but the economy is in a much healthier position than expected. The probability of a recession is down to 20% from 40% in December. The current weakness could be a bear trap before sentiments improve again. A lot will depend on the economic data release this month and price action around crucial support levels.