Crypto Fundamental Analysis: Risk sentiment rises as crypto appetite declines

As March draws to a close, the cryptocurrency market has begun to show a consistent weakening bias, accompanied by declining confidence. This comes as appetite for risk assets continues to fade in the short term, driven by rising risk sentiment following new developments in the Middle East conflict. This environment is pushing markets toward more stable assets, making the lack of interest in crypto more evident. If confidence fails to recover, this could continue to support sustained selling pressure in the coming sessions.

Rising tensions weigh on risk appetite

The trading week has been marked by attempts to advance negotiations in the Middle East conflict. The United States presented a 15-point plan aimed at achieving a short-term ceasefire; however, Iran rejected the initial conditions, raised its demands, and stated it would only accept an agreement under its own terms. This suggests that a diplomatic resolution is not likely in the near term.

Market reaction has been clear, with a steady increase in risk perception, alongside a rebound in energy prices, as WTI crude once again approaches the $100 level.

This environment has reduced appetite for risk assets, as market participants shift toward more stable alternatives such as the U.S. dollar and the bond market. This dynamic is also reflected in Bitcoin, where the Open Interest indicator—measuring total open positions—has shown a notable increase, reaching levels near $22.2 billion.

However, this rise in Open Interest has been accompanied by a decline in BTC price, suggesting that the increase may be driven by short positions, reflecting weaker demand and a growing preference for downside exposure in the short term.

Source: CryptoQuant

Taking all of this into account, as the conflict remains active, Bitcoin—and the broader crypto market—appears unable to sustain enough appeal to attract consistent demand. This suggests that capital may continue to shift toward safer assets, and as long as no clear resolution emerges, the relevance of cryptocurrencies could continue to decline, supporting ongoing selling pressure in the short term.

 

Bitcoin versus other markets

At the moment, Bitcoin has begun to show a loss of correlation with assets that have recently strengthened, such as the U.S. dollar, as reflected in the behavior of the DXY index.

The correlation coefficient remains around 0.15 over the last 10 sessions, highlighting a short-term disconnect. While the dollar has shown increasing strength, Bitcoin has moved sideways or weakened, failing to track safe-haven assets. It is important to note that correlation can change over time.

This environment suggests that Bitcoin is not attracting consistent capital flows or positioning itself as a short-term safe-haven, while markets continue to favor more stable assets like the dollar.

Source: Data – TVC, StoneX, Tradingview

In this context, as bonds and the U.S. dollar continue to show stronger demand and stability, the crypto market is likely to remain in a weak or sideways phase in the short term.

 

Confidence declines again

The Fear and Greed Index for cryptocurrencies, although it showed a modest recovery in previous sessions, has weakened again toward the end of the week, falling to around 22 points and returning to the boundary between “fear” and “extreme fear.” This reflects a continued deterioration in confidence and a rising perception of risk in the crypto market.

Source: Coinmarketcap

In this environment, weak confidence continues to limit the development of sustained demand, reflecting a gradual decline in market appetite. If the index fails to recover or returns consistently to the “extreme fear” zone, it could reinforce a bearish sentiment, increasing the likelihood of continued selling pressure in the coming sessions.

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25