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Bitcoin (BTC) starts a new week struggling to preserve support as key macro changes appear on the horizon.

In what could turn out to be a crucial week for Bitcoin and altcoins’ relationship with traditional assets, the United States Federal Reserve is set to be the main talking point for hodlers.

Amid an atmosphere of still rampant inflation, quantitative easing still ongoing and geopolitical turmoil focused on Europe, there is plenty of uncertainty in the air, no matter what the trade.

Add to that a failure by Bitcoin to benefit from the chaos and the result is some serious cold feet — what would it take to instill confidence?

Just as it seems nothing could break the now months-old status quo on Bitcoin markets, which have been stuck in a trading range for all of 2022 so far, upcoming events could nonetheless provide that catalyst for a sea change in both sentiment and price action.

Cointelegraph takes a look at the factors set to help move the markets in the coming days.

Russia, China, inflation and the Fed

Fight it or not, the Fed is the likely kingmaker when it comes crypto performance this week.

On March 16, policymakers will decide whether or not to proceed with a key interest rate hike which has been expected since last year.

The Fed has a problem — inflation is running hot. But the desire to reduce its record balance sheet from two years of coronavirus excesses is too.

A rate hike is thus tipped to be only modest — perhaps a quarter of a basis point — but the implications could nonetheless be considerable for Bitcoiners.

BTC has already shown itself to be firmly attached to U.S. equities, and any knee-jerk reactions to the Fed will likely be copied.

Stocks are no friends of rate hikes, as the easy money period  accompanied COVID-19 reactions was something of a golden era that only ended in late 2021. This comes as the reality of the Fed’s moves hit home. Bitcoin, likewise, saw an all-time high in November and then began a swift decline.

“This week will be big for crypto and equities traders, as the Fed is expected to decide on a quarter-point rate hike this week. Bitcoin & Ethereum have been pegged to the SP500 in 2022, and these decisions should impact cryptocurrencies greatly,” analytics firm Santiment summarized on March 14.

The Fed, however, is far from the only macro player for Bitcoiners to worry about.

In Europe, lawmakers are set to vote on cryptocurrency legislation, with some attempting to instigate a ban on proof-of-work (Poprotocols citing environmental concerns.

While critics have already dismissed the idea as ludicrous, the threat to sentiment from a potential victory remains.

“A PoW ban would be a ban on guessing a number,” Knut Svanholm, author of Bitcoin: Sovereignty Through Mathematics, warned.

“Think about what such a ban would imply.”

Next door, the Russo-Ukrainian conflict continues to advance along with its economic fallout — Russia risks default, and sanctions and trade blocks are adding to inflationary pressures.

In China, meanwhile, COVID-19 itself is back on the radar with an increasing number of residents locked down.

Spot price “celebrates” two years since COVID-19 crash

As such, things are at best precarious for short-term Bitcoin traders.

Given that any one of the above macro factors could spark a fresh rout in equities, for many, Bitcoin felt like a sitting duck as the week began.

“We are yet to see the capitulation dip as per every other macro dip we have seen,” popular Twitter account Crypto Tony argued.

Such a capitulatory move has already been voiced as a stark possibility, and the timing would be grim, coming almost exactly two years to the day that BTC/USD crashed to $3,600 in the first round of COVID-19 mayhem.

As Cointelegraph previously reported, support levels remain unclaimed as $40,000 refuses to hold for more than a few days or hours.

The weekly close saw a last-minute dip toward $37,000, BTC/USD, nonetheless managing to reclaim much of the lost ground to trade at around $38,600 at the time of writing.

Analyzing the near-term prospects, fellow Twitter account Plan C turned to his Confluence Floor Model to conclude that a macro price bottom could be due in the coming month.

Such a low could fall at around $27,000, however. This would take Bitcoin below its 2021 opening price and briefly out of the range it has consolidated since then.

“I am not convinced we go to 27k, but if history repeats for a 4th straight time that could be the low of this accumulation phase,” Plan C added on Twitter.

Accumulation provides faint silver lining 

On the topic of accumulation, it appears that it is not all bad news when it comes to the demand for Bitcoin at current prices.

As Cointelegraph reported, whales have been active in recent days while the proportion of the overall BTC supply controlled by smaller investors has reached a one-year high.

Now, those habits are being reflected in the continued fresh lows in exchanges’ supply.

The changes were noted by Philip Swift, creator of on-chain analytics resource LookIntoBitcoin, on March 1.

Separate data from on-chain analytics firm CryptoQuant confirms the trend and shows that out of the 21 major exchanges it covers, BTC balances are at their combined lowest since early August 2018 — 2.32 million BTC.

The story with exchange balances is in fact fairly complex, as different exchanges exhibit different trends.

In the latest edition of its weekly newsletter, The Week On-Chain, released March 7, fellow on-chain analytics platform Glassnode devoted significant attention to the phenomenon, noting that sell-side supply overall remains “fairly modest” given macro circumstances.

“During the highly volatile macro and geopolitical events of the last few weeks, exchange net-flow volumes are also reasonably stable, despite a slight bias towards inflows this week,” researchers noted at the time.

The latest Glassnode data shows that exchanges have since lost another $1.9 billion in BTC in the past week.

Market sentiment impresses no one

Unsurprising, perhaps, but Bitcoin and wider crypto sentiment is pointing firmly downhill this week.

After two months of ranging and fakeouts, bulls are tired and the threat of a macro-induced capitulation hangs in the air.

“Bitcoin sentiment feels worse now than July ‘21 imo and price is over $8k higher now vs. the July ‘21 low,” Twitter analytics account On-Chain College summarized.

Examining the on-chain reality this week, research, insight and education resource Cane Island Digital Research highlighted volume as another telltale sign that momentum had fallen out of Bitcoin.

“Bitcoin volume is a horrible indicator of price but it is a decent indicator of sentiment,” it commented.

“It‘s hard to think that volume could go much lower, which means bitcoin must be close to a bottom.”

While this could be an indicator of an incoming capitulation and trend reversal, the fear was still palpable.

Mark Yusko, founder, CEO and chief investment officer of Morgan Creek Capital Management, described the Cane Island numbers as sentiment “getting close to washed out.”

Meanwhile, The Crypto Fear & Greed Index remains in “extreme fear” territory, near the 20/100 mark, which has acted as a line in the sand since mid-February.

Crypto Fear & Greed Index (screenshot). Source: TradingView

Blast-off for volcano bonds?

Looking for a counterpoint to the seemingly endless bad news from macro sources?

Related: Top 5 cryptocurrencies to watch this week: BTC, DOT, SAND, RUNE, ZEC

It could well come this week in the form of El Salvador and the issuance of its much-vaulted ten-year Bitcoin bonds, known informally as the volcano bonds.

The country which became the first to adopt Bitcoin as legal tender last year has since turned to geothermal energy from a volcano to mine BTC.

To that end, it is now seeking long-term investment partnerships by issuing bonds tied directly to mining — a move which has commentators excited about serious money potentially flowing into the ecosystem.

While the exact date of the bonds’ issuance, expected to attract $1 billion, remains unknown, suspicions are mounting that it could come this week.

Aside from the benefits of using the cash to invest in BTC, the long-term consequences of El Salvador’s plan, if successful, should be underestimated as a shift in the global economic paradigm, according to former Blockstream chief strategy officer Samson Mow.

In an interview with Saifedean Ammous on the Bitcoin Standard Podcast this weekend, Mow was as upbeat as anyone on the outlook.

“So if El Salvador pulls off this bond, then it shows the world that you don’t need to rely on the IMF or any central lending Institute that does not necessarily have your best interest at heart, but you can just fund everything with Bitcoin backed bonds,” he said.