Bitcoin has a crucial task ahead to determine whether its record-setting bull run in 2020 is a repeat of 2017’s pump-and-dump scenario or its first step towards a long-term ascent.
In the last seven days, the benchmark cryptocurrency signaled the former. Its price took a beating, falling more than 30 percent from its yearly high above $19,500 after a slew of positive coronavirus vaccine trials triggered investors away from anti-fiat assets (including gold).
But the weekend session showed signs of life. Bitcoin rebounded by as much as 13 percent throughout Saturday and Sunday, illustrating a stronger buying demand around certain support levels. That latest one was inside the $16,200-16,400 price range.
But why did traders decide to buy Bitcoin when half the world was speculating over its extended decline? Are they short-term speculators or long-term investors that are simply using the latest plunge as their Black Friday deal? The answers may vary.
To my bias, the latest buyout finds its cues in the ongoing macroeconomic narrative, especially the one that concerns the Federal Reserve’s short-term outlook of the US economy.
Last week, the US central bank released the minutes of its early-November meeting. In a nutshell, they suggested that the Federal Open Market Committee (FOMC) is okay with the provision of additional monetary stimulus.
The Fed officials were right in their assessment to some extent. Their comments appeared as the US economy walks deeper into troublesome territories, prompted by the rising number of coronavirus infection rates across its regions.
There is no need to repeat what the pandemic has done to the global economy, with governments choosing to lockdown people and their businesses to curb the infection from spreading human-to-human. That has translated into record-setting unemployment, bankruptcies, and whatnot.
The scenario has led the Fed to open emergency-lending facilities at ultra-low interest rates. They have also been at the forefront of buying Treasury and corporate debts, injecting additional liquidity that can serve as “an important backstop in financial markets.”
Meanwhile, with initial jobless claims figures spiking to five-week highs recently, the Fed needs to accelerate its dovish programs to shield the economy further.
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Bitcoin traders watch these developments as their cue to go long on the cryptocurrency long-term. It is because dovish policies put downward pressure on the US dollar.
As the greenback loses value, investors start de-risking their cash-based portfolios with riskier assets. They buy stocks, gold, silver, and any asset that can promise to behave as a hedge. Bitcoin fills that role as well.
The recent breakdown in the Bitcoin prices took place due to portfolio repositioning. Traders thought it was time to seek the US dollar as back-to-back reports of the COVID-19 vaccine hit the wire. Nevertheless, the buying frenzy returned during the weekend as investors measured the vaccine news against the Fed’s dovish minutes.
Therefore, it is very likely for Bitcoin to extend its uptrend towards a new all-time high. Better keep calm and HODL!