Bitcoin price gets boost from Fed but bond yields could play Spoilsport: analysts
Bitcoin’s bull run is set to continue after the Federal Reserve reconfirmed its pro-stimulus stance this week.
The biggest cryptocurrency was up for a third straight day, gaining 0.7% to around $59,300 as of 5:32 p.m. Coordinated Universal Time (1:30 p.m. ET).
The price rally came as 10-year US Treasury bond yields exceeded 1.75%, a day after Federal Reserve Chairman Jerome Powell signaled on Wednesday that central bank policymakers would keep monetary policy at unusually loose levels for the foreseeable future to give the economy more time to heal. Such a stance could allow output and employment to recover quickly, potentially fueling rapid warming that could ultimately lead to faster inflation.
Higher Treasury bond yields reflect investors’ demand for additional returns to offset inflation risk. A growing number of investors are betting that bitcoin could act as a hedge against a decline in the dollar’s purchasing power, and German lender Deutsche Bank released a report this week stating that bitcoin is “now too important to ignore. “in view of his $1 trillion market capitalization.
“The story of bitcoins because the preferred store of value has only grown stronger in the wake [Fed Chair Jerome] Powell’s comments,” said Matthew Dibb, co-founder and COO of Stack Funds. “Our outlook on BTC remains very bullish. The recent retracement to $53,000 was a short-lived pullback before the cryptocurrency gave way to fresh all-time highs.
Powell pushed back on Wednesday on speculation of an early unwinding of monetary stimulus, boosting the appeal of inflation hedges such as bitcoin.
“The strong majority of the committee does not show a rate increase over this forecast period,” Powell said during a virtual press conference Wednesday following a meeting of the Federal Open Market Committee, according to Bloomberg. The central bank chief added that it was “not yet” time to talk about reducing central bank asset purchases that boost liquidity.
According to Denis Vinokourov, head of research at trade sentiment data provider Trade the Chain, further gains could be in sight due to the Fed’s decision to raise the limit per counterparty in overnight reverse buybacks. the day from $30 billion to $80 billion.
“The hike implies that the Fed wants to hold overnight rates [short-term borrowing costs] weak,” Vinokurov said. “Thus, it is negative in dollars and, in turn, should drive the return into assets.”
Additionally, with Fed-related uncertainty out of the way, bitcoin and the broader crypto market could now see stimulus, or “stimmies,” rally, as tweeted by trader Alex Kruger. According to Mizuho Securities estimates, Americans could spend nearly $40 billion of the latest round of direct stimulus checks on bitcoin and stocks, boosting their prices.
Bitcoin’s daily chart also paints a bullish picture.
Bitcoin jumped more than 3% on Wednesday, confirming a bullish rally signaled by Tuesday’s “hammer” candle and shifting focus to record highs above $61,000 hit on Saturday.
Yield concerns persist
Bitcoin bulls will keep an eye on the US bond market as a faster rise in yields could weigh on stocks, inviting selling pressure for bitcoin as well.
“A rise in yields is a problematic time, but a rapid ascent can destabilize markets,” Kruger told CoinDesk in a Telegram chat.
Stocks and bitcoin took a hit in the last week of February, with the cryptocurrency falling 20% as the 10-year yield hit 12-month highs above 1.5%.
Similar declines could be seen if the yield continues to rise. At press time, the 10-year bond is seen at a 14-month high of 1.72% from 1.62% before the Fed’s announcement and 1.52% a week ago. The Fed’s assurance of continued stimulus support has so far not prevented the benchmark yield from extending its recent rise.
However, bitcoin’s pullbacks, if any, would be short-lived, according to LMAX Digital’s currency strategist. “As bitcoin matures into a full-fledged store of valuable assets, risk events will be favorable to bitcoin,” Kruger said in a statement. Twitter response at CoinDesk.
Bitcoin is currently changing hands near $58,450, up 6.3% over 24 hours, according to data from CoinDesk 20.
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