Bitcoin rose on Wednesday, just before the Federal Open Market Committee’s minutes were released from its November meeting.
The benchmark cryptocurrency rose 0.13 percent to $ 19,198. The rally slowed as traders weighted vaccine progress against a sustained surge in coronavirus infections in the US. Tech-wise, Bitcoin maintained support near $ 19,000, with bulls viewing the level as a trigger for the next record high.
Bitcoin has risen more than 350 percent since mid-March. Source: BTCUSD on TradingView.com
Bitcoin is up by more than 350 percent from its mid-March nadir. Source: BTCUSD on TradingView.com
Much of Bitcoin’s short- and medium-term market bias is expected to come from the Federal Reserve’s forecasts on Wednesday.
The central bank may want to keep its existing monetary policy framework stable, considering that unemployment claims rose again in the week leading up to November 14th. A pro-people policy could also emerge if states impose a new round of lockdowns.
Fed chairman Jerome Powell and colleagues discussed the prospect of buying sovereign and corporate debt indefinitely to keep the US economy alive during the pandemic. For example, New York Fed President John William said these expansion programs “are doing really well for their purposes right now.”
James Bullard, President of the St. Louis Fed, also echoed his associate’s comments, stating that the Fed had no reason to hold back a program that is preventing the economy from plunging into another recession.
Still, US Treasury Secretary Steven Mnuchin decided last week to end some of the Fed’s emergency lending facilities after December 31st. This has set a deadline for the central bank to act faster than usual – by taking further easing measures later this year.
As always, it’s bullish for Bitcoin.
Bitcoin versus dollar
The cryptocurrency does not react directly to the Fed’s decisions. Instead, it correlates with the US dollar, which moves according to the whims of the central bank. And so far, Fed policy has done no good for the greenback.
US dollar index amid additional bearish risks if the Fed remains cautious. Source: DXY on TradingView.com
US Dollar Index under additional bearish risks should the Fed remains dovish. Source: DXY on TradingView.com
The US Dollar Index (DXY) is trading just a few notches above its annual low of 91.75. If the Fed decides to resume its bailout programs, the index can retest the lows followed by a breakdown. Forex analyst Daniel Moss weighs:
“Ultimately, a daily close below the September low is required to signal the resumption of the primary downtrend and bring 91.16 into play.”
A depreciating dollar allows investors to convert their capital into higher beta currencies and growth-sensitive assets. Bitcoin with its anti-inflation narrative therefore accommodates the occasion.
An assertively restrained Fed promises an upward scenario for the cryptocurrency. So it seems that after the FOMC minutes, Bitcoin could try to try a bull run towards its all-time high.
However, if the Fed bows to Mr. Mnuchin’s demands, it will spell a short-term setback for the cryptocurrency – until Ms. Janet Yellen takes over the role of finance minister next month and reactivates the nascent credit facilities.