Bitcoin hovered between gains and losses on Wednesday as traders measured sell-off signals on the chain against the decline in benchmark bond yields.
The flagship cryptocurrency rose around 0.5 percent to $ 34,335 before the New York opening bell. It was trading at its intraday high at $ 35,233 on the Coinbase exchange, indicating bullish attempts to bullish another bull run towards $ 40,000.
Bitcoin feels bearish below $ 35,000. Source: BTCUSD on TradingView.com
Bitcoin feels bearish sentiment under $35,000. Source: BTCUSD on TradingView.com
Fundamentals supported a choppy outlook for the cryptocurrency market.
Benchmark bond yield falls
The yield on the 10-year US Treasury bill fell for seven straight days. Its gains came amid a new bond auction that attracted strong demand from traders (not investors). They borrowed the majority of the $ 38 billion worth of new government debt and covered 20 percent of the securities. Yields fall when bond prices rise.
Strong demand at an overnight auction of $ 38 billion worth of 10-year bonds and reluctant comments from Fed officials started SAP momentum amid the recent sharp rally in US Treasury bond yields
– Alice CFA @ (@canduys) January 13, 2021
Bitcoin traded higher as long-term bond yields stayed below 1 percent after the router in March 2020. Traders believed that the Federal Reserve’s pledge to buy sovereign debt in support of the U.S. economy would push mainstream investors to look for better returns in the cryptocurrency market.
This became somewhat true when billionaire investors like Paul Tudor Jones and Stan Druckermiller, along with mainstream companies like MicroStrategy, Ruffer Investments, Square, etc. poured their capital into the Bitcoin market. This has helped the cryptocurrency to become a perceived safe haven.
However, since the return is above 1 percent again, especially since the elected President Joe Biden is making higher government spending in addition to economic growth, the potential of Bitcoin to support a further upward trend appears poor in the short term.
Ten-year US bond yields fell for two days in a row. Source: US10Y on TradingView.com
US 10-year bond yields dropped two days in a row. Source: US10Y on TradingView.com
Meanwhile, many analysts note that the Fed would cap government bond yields because it pledged to support the US economy. The central bank would buy infinitely many bonds until it hit inflation above 2 percent and maximum employment.
“I don’t think rates will go much higher as there is still a lot of demand,” said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. Meanwhile, he found that additional economic outlook would protect riskier assets.
This could include Bitcoin as it rose shoulder to shoulder with the global stock market in 2020.
On-chain Bitcoin data disappoints
While the long-term outlook for Bitcoin remains stronger, its short-term bias leads to scary considerations.
Ki-Young Ju, the chief executive officer of CryptoQuant, a South Korea-based blockchain analytics platform, noted that outflows from Coinbase Pro, a US-based exchange for digital assets that trades bitcoin over the counter, decreased significantly.
“Miners are selling, no significant stable coin inflows, no Coinbase outflows and 15,000 BTC has flowed into the exchanges since yesterday,” Ju said on Tuesday. “We could have a second dumping.”
Grayscale Investments, a New York-based trust that trades Bitcoin, also stopped reporting its cryptocurrency purchases on December 25th. The company was responsible for creating a supply crisis after collecting a total of 572,644 BTC.
Grayscale bitcoin trust stocks. Source: ByBt.com
Grayscale Bitcoin Trust holdings. Source: ByBt.com
“If inflows occur, which indicates institutional demand, Bitcoin could rise again,” said market analyst Joseph Young. “Remarkable.”
Grayscale reopened on Tuesday after the holiday season.