While bitcoin has been trading higher for much of March, investor sentiment has been particularly upbeat since Sunday. Vanda Research says small investors are banking on continued momentum.
The price of bitcoin passed above $45,000 over the weekend -- a key level at which bitcoin has been rallying this year. The next rally -- $50,000 -- is a key psychological threshold that many observers believe could get big investors off the sidelines and into the market, propelling cryptocurrencies to all-time highs or higher.
Meanwhile, smaller investors are taking bets, according to Vanda's analysis of open bitcoin contracts.
"Cryptocurrency investors have upped their bullish bets," Marco Iachini, senior vice president of Research at Vanda, said in a note to investors on Wednesday. "Activity in the crypto derivatives market has picked up in recent weeks. Open interest has now climbed for three consecutive weeks to levels last seen during the November 21 peak; Most of the new speculators are 'new bulls' around $45,000."
Bitcoin recently traded at just under $47,000, according to Coin Metrics. 'That's where most of the shorts remain, and the longer it stays at that level, the more likely it is to break higher,' Mr. Vanda said.
For months, bitcoin prices have moved in lockstep with traditional risk assets. However, there were some positive catalysts in March beyond the closely watched developments in Ukraine and the Fed.
Given the "moderate stance" from President Joe Biden's executive order on cryptocurrencies earlier this month, Vanda said it has sparked a backlash.
In addition, Vanda highlighted a Goldman Sachs study showing that 60% of clients surveyed expect to increase their cryptocurrency holdings in the next year or two. It also noted that Treasury Secretary Janet Yellen's stance on cryptocurrencies appears to be shifting.
"Encryption brings benefits, and we recognize that innovation in payment systems can be a healthy thing," she recently told CNBC's "Squawk Box." "We hope to end up with proposals that will create a regulatory environment for innovation."
Vanda also noticed that Terraform Labs was on a bitcoin buying spree due to its stablesoin reserve. Developers plan to buy $10 billion for the reserves, and have reportedly bought more than $1 billion since the beginning of the year.