Bitcoin stayed on a corrective course this Wednesday as investors waited for the Federal Reserve to deliver its minutes from the July monetary policy meeting.
The Federal Open Market Committee expects to provide more insights into the modifications that Fed officials are planning for stimulus policy. Observers believe that the minutes would shed more light on the US central bank’s take on whether or not it would take inflation rate above its benchmark target of 2 percent.
For that to happen, the Fed would need to maintain its interest rates near zero while continuing its quantitative easing policy to support the US economy through the coronavirus pandemic.
Bitcoin, Gold Drop
A recent run-up in the safe-haven and risk-on markets attest to that sentiment, with Gold and the S&P 500 hitting their record highs, and Bitcoin–an offbeat asset–surging to its year-to-date top above $12,000.
The benchmark cryptocurrency logged a pre-conceived rally above the said level this Monday. After hitting a yearly high at $12,486, it started correcting lower on profit-taking sentiment. As of Wednesday, it was trading almost 7 percent lower from the said top.
Similar to Bitcoin, the Gold market, too, reported a corrective price action on Wednesday. The precious metal’s spot rate plunged 1.64 percent to $1,968.95 an ounce. Its drop appeared on a stronger US dollar pullback, a move that might have driven Bitcoin lower, as well.
Bounce Back Expected
Ronnie Moas, the founder of Standpoint Research, treated the cryptocurrency’s dip as a healthy correction. The macro analyst noted that BTC/USD still had enough fuel to continue its rally towards $13,000.
“IF YOU LOOK AT THE BITCOIN’S CHART SIX-HOUR BARS, SEVEN OF EIGHT BARS (CANDLES) ARE RED SINCE WE HIT $12,480 AND ROLLED OVER (6%) DURING THE LAST 48 HOURS,” HE EXPLAINED. “MAYBE WE ARE GETTING READY TO BOUNCE BACK TOWARDS $12,000-$12,500 NOW AND SET UP FOR A TEST OF $13,000.”
Meanwhile, analysts at Citi Index noted something similar about gold. They said that further monetary policy action from the Fed would keep demand for safe-haven assets high.
“A CLOSE ABOVE $2,015 WOULD TURN THE TECHNICAL OUTLOOK TO POSITIVE AND TRIGGER AN ADVANCE TO THE RESISTANCE LEVELS AT $2,075 AND $2,140,” THEY ADDED. “ON THE OTHER HAND, FAILING TO STAND ABOVE $2,015 WOULD CONTINUE THE RANGE TRADING AND MAY RETURN TO THE SUPPORT LEVEL AT $1,910.”
The correlation between gold and Bitcoin hit a record high this month.
While both the assets look fundamentally stronger, either a pause or a pullback in the Fed’s dovish sentiment would make the US dollar stronger. That, in turn, could push them both lower.