The case for a new crypto bull market has been slowly growing since the beginning of the year and gained more strength still in March. Bitcoin , still the clear leader of the crypto market, just finished its third month in a row of gains , ending up more than 20% in March. It also posted its best quarter (advancing more than 70%) since the first quarter of 2021, when the last bull run began. So far this year, crypto investors have overcome several obstacles – chief among them the regional banking crisis in the U.S. that demonstrated the diversity of the bitcoin narrative, a hostile regulatory environment as Washington mulls taking action in the wake of the failure of FTX, and persistent inflation. At each turn, prices climbed highe r anyway. While some investors see this as the beginning of a new bull market, its strength and consistency may still not be signs for them to jump back in. Despite bitcoin's lack of correlation with stocks, it's still sensitive to the macro economy, which remains rife with uncertainty. "In terms of the next three months, it's been all about the Fed for almost two years now, and the Fed is going to be data dependent," said Joe Orsini, macro strategist and author of the "Signal vs. Noise" blog. "Do they have one more hike in their system? It really depends how the market takes a potential cut of only 50 basis points this year" for example, "and does that even matter?," he added. For Orsini, the new bull market in crypto began on Jan. 13, when bitcoin broke through its 200-day moving average. Furthermore, U.S. regulators appear to be cracking down on crypto. Wells Fargo equity analyst Jeff Cantwell said in a note Friday that recent actions by the Securities and Exchange Commission "create further uncertainty about the space for investors." 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Less liquidity, bigger swings Bull market or not, investors agree it'll be no straight line up over the next few months. Juthica Chou, head of OTC options trading at Kraken, said the options market is still pricing in expectations of continued volatility – and that's mostly a good thing. "Bitcoin needs to be volatile right now in order to grow in size and market cap," she said. "It's still so early, the market cap is about $500 billion, so it's not sufficiently large enough to serve as a global form of money just yet. The volatility needs to be high for it to reach that level of maturity, and when it's high enough in market cap [then] you can expect the volatility to come down." BTC.CM= YTD mountain Bitcoin is up more than 70% in 2023 One of the main drivers of crypto's March rally – the new illiquidity in the market – could also bring some pain to investors over the next quarter. When Silvergate and Signature Bank failed, they took with them coveted payments rails that allowed businesses that deal in dollars to "onboard" into the crypto ecosystem – namely, the Silvergate Exchange Network and the Signet platforms. They weren't the only banks available to crypto businesses but, without them, it's taken a little longer to move between dollars and crypto, particularly during off hour nights and weekends when traditional businesses are closed. "You can expect more volatility because there are thinner order books where there's no credit availability and it's more difficult to move into or out of," said David Wells, CEO of Enclave Markets. "I haven't seen the evidence that it's going to impact bitcoin's fundamental use case, it just means you need to be ready for larger swings to both the upside and the downside." Conor Ryder, an analyst at crypto data provider Kaiko, said while the March rally was kickstarted by the banking crisis and the rediscovery of bitcoin's utility beyond speculation, it was the illiquidity in the market that drove its price through the end of March. "Liquidity is at its lowest level in 10 months for bitcoin, which means there is less price support to both the upside and the downside," he said. "Once a rally starts in a low liquidity environment, we can see larger price moves upwards. However, those move upwards can just as easily be followed by large moves down thanks to the lack of support below current prices so investors need to approach markets with caution, at least until we see an improvement in crypto liquidity." What could go wrong Though there isn't a clear definition in crypto of what constitutes a bull market, it is clear there's more nuance in the market heading into the second quarter. The Federal Reserve pushed crypto into its bear market and many thought it was the Fed alone that could pull it back. After March, however, there are "so many idiosyncratic risks that are involved in crypto that could definitely stop or even reverse" bitcoin's up trend, Wells said. Inflation and interest rate policy are still big influences. It would be a major setback if the market goes back to thinking the Fed will hike short-term interest rates above 5%, according to Matt Hougan, chief investment officer at Bitwise Asset Management. Hougan believes crypto is currently in a multi-year bull market cycle with strong tailwinds. Ahluwalia at Lumida Wealth said he doesn't expect the Fed to ease rates, at the same time as it keeps providing ample liquidity to the banking system. Sadie Raney, CEO of Strix Leviathan, was more optimistic about a Fed pivot. But she also cited regulatory updates as main theme to watch in the coming quarter. "The biggest headwind to bitcoin price could also be its biggest tailwind — regulatory clarity," she said. "It seems unlikely that a divided Congress will produce clarifying legislation, which will keep large institutional pools of capital on the sidelines, depressing prices. That said, there are several legal cases concerning digital assets that could be headed to the Supreme Court... [which] could be inclined to make a more sweeping statement on digital assets and provide much needed regulatory clarity." Bitcoin is on its way to a bull market, Wells of Enclave Markets said, citing a more optimistic macroeconomic picture and increased adoption of crypto by firms such as Fidelity and BlackRock. Anmd while he warned that another failure like FTX could drag the market lower, in the meantime, investors should watch the regulatory risk in the market as Washington continues to find its way around the FTX collapse. "Regulators felt caught off guard by [FTX] and possibly misled, so you have this pendulum swinging in the direction of making sure no more of these events happen – even if that means overcorrecting a little bit or tightening up standards to be more conservative and more cautious when it comes to this asset class," he said.