YEREVAN (CoinChapter.com) — The drop in Bitcoin (BTC/USD) prices last week could be seen as another session of choppy trading, wherein speculators remain confused above the cryptocurrency’s subsequent directional bias as they accumulate near $30,000-support and distribute around $35,000.
But there are more factors in place, primarily the ones that concern the ongoing macroeconomic conditions. Suffice to say, Bitcoin’s choppy price action coincides with a broad-based sell-off in equities and a sharp drop in US government bond yields last week. Moreover, the news becomes even heavier as investors prepare themselves to digest this week’s information on inflation and the US Federal Reserve policy.
The reason is simple: Bitcoin is a hedging asset to many and snake oil to others. Many investors would like to turn to the so-called safety of Bitcoin if things get too confusing for stock and bond markets.
Delta variant and Bitcoin
For instance, Fed has indicated that it might hike interest rates by the end of 2023 and scale back its $120bn monthly asset purchasing program as the US economy grows rapidly. But the growth prospects face blockages in a flurry of fundamentals.
The most problematic is the Covid-19 delta variant; it is spreading faster in Europe and many developing nations. Also, vaccines’ efficacy against the new variant remains shady, so there is no way of telling whether or not markets have left the Covid-19 FUD behind.
As a result, one might expect the hawkish Fed to tone its hawkishness down by two notches. That serves as the theme as the US central bank’s chief Jerome Powell delivers his semiannual report to Congress on the state of the economy this Wednesday.
For a while now, near-zero interest rates have reduced Bitcoin’s bearish burdens. However, word on the street remains that the cryptocurrency is a better asset to hold than a government bond, especially as the yields on the latter trade near their record lows even after a year-to-date spike. In simple words, lower rates mean cheap financing available for companies and individuals alike.
So, where does that additional liquidity go? The most likely answer is Stocks. That is because bond yields offer nothing substantial to investors. Or gold for its ability to act as a haven in periods of economic distress. Meanwhile, 2020 showed that investors could trust Bitcoin (read Stan Druckenmiller, Paul Tudor Jones, Tesla, Square, etc.).
That leaves the cryptocurrency market in three distinctive moods: TINA, which stands for There Is No Alternative; BTD, which means buy the dip; and FOMO, or fear of missing out on another Bitcoin price rally. All at the time when it continues to hold $30,000 as support.
On Tuesday, just a day before Powell’s speech, the US consumer-price index will post another significant spike in June, underscoring a recent run-up in inflation. However, Fed continues to assert that the price rises are transitory, blaming supply chain bottlenecks for goods such as cars and appliances behind the surge.