Bitcoin slipped and the US dollar strengthened as traders unloaded their market risks ahead of the Federal Reserve’s first meeting of the year.
The BTC/USD exchange rate fell by roughly 10 percent ahead of the New York opening bell to establish an intraday low of $29,250. The move downside came as a part of a broader bearish correction that started after BTC/USD logged a record high near $42,000.
Nevertheless, Bitcoin’s sell-off accelerated on Wednesday, right in line with a strong rebound in the US dollar index. The benchmark metric, which measures the greenback’s strength against a basket of top foreign currencies, jumped 0.77 percent in the pre-market trading.
A strong dollar undercuts demand for safe-haven assets like Bitcoin, as well as gold.
FOMC Meeting
The Federal Reserve Chairman Jerome Powell will address the media today after concluding the year’s first Federal Open Market Committee meeting. His address expects to reassure investors that the US central bank has no immediate plans to wind-down its $120-billion worth of asset purchases every month to walk the economy through the coronavirus pandemic.
Many analysts and strategists believe that the Fed will not make any changes to its loose monetary policy for at least the rest of this year. Its presence so far has helped drive the Bitcoin price from its mid-March nadir of $3,858 to a record peak of $41,986.
It is because aggressive debt purchases turn the yields on them lower, making them unattractive for investors to hold until maturity. Therefore, any signs of continued bond purchase from Mr. Powell will tend to benefit Bitcoin but put downward pressure on the dollar.
“Keeping bond yields low while trying to get some CPI inflation means that we’ll get negative real rates for a while,” said Nick, the founder of crypto newsletter service Ecoinometrics.
“In the past, those conditions have helped create gold bull markets as we covered last week. As Bitcoin is increasingly seen as a store of value by institutional investors it could benefit from the same dynamic,”
he added.
Nevertheless, concerns over whether US President Joe Biden would be able to pass his $1.9 trillion stimulus bill have offset Bitcoin’s bullish bias. The proposal has run into dissent from Republican lawmakers, even though unemployment claims in the US have reached above 900,000 a week and retail sales have slumped for three months in a row.
That has led investors to see some bullishness in the US dollar.
Bitcoin Bullish Nonetheless
Vijay Boyapati, the author of the Bullish Case for Bitcoin, said Wednesday that even a tapering tantrum from the Fed would only create short-term shocks for the cryptocurrency.
“It’s true that the Fed tightening may temporarily cause Bitcoin (and other assets) to fall. But the monetary chaos that would result from a tightening is going to create an environment perfect for Bitcoin.”
he explained.
