Yerevan (CoinChapter.com) — Bitcoin rejected a bullish breakout above $40,000 — all over again.
The benchmark cryptocurrency was at it during the Thursday trading session. It briefly climbed above $40,000 after the New York Times published an exclusive report about President Joe Biden’s intention to propose a $6 trillion federal spending budget.
The BTC/USD exchange rate reached an intraday high of 40,440 only to return lower because traders were too afraid to bet on a bullish outcome. Their concerns appeared out of too many things at once, starting from Elon Musk’s attack on Bitcoin over its alarming carbon footprints, China’s crypto ban, and the Biden administration’s effort to tax crypto transactions worth $10,000 or more.
Then, there were psychological fears of a 2018-like bloodbath. Bitcoin almost reached $65,000 last month, up more than 1,500 percent from its mid-March 2020 nadir of $3,858. That is enough for long-term bitcoin holders to step back and withdraw profits. The market was expecting a downside correction and Elon Musk & Co. just delivered it on a — aha — silver platter.
But how far the downside move would go depends entirely on macroeconomic factors. In retrospect, most of Bitcoin’s gains since March 2020 have surfaced due to extremely loose central bank monetary policies. For instance, the Federal Reserve maintains its benchmark interest rate near zero.
The US central bank also buys $120 billion worth of government bonds and mortgage-backed securities every month. That’s an artificial backstop to feed the US economy with dollar liquidity. And so the rule goes, money printing leads to inflation.
Fed Wanna Go Hiking
Fed wants the core inflation to rise above 2 percent before it withdraws its loose monetary policies — aka tapering. Therefore, it could hike rates, making the US government bonds more attractive for foreign investors. As a result, the US dollar rises. In turn, the demand for Bitcoin drops. And with it goes the cryptocurrency’s gains.
Last month, the Consumer Price Index (CPI), Fed’s preferred gauge to measure inflation, came near 4.2 percent. Bitcoin started dropping from its record high right around that time. Meanwhile, inflows into the Grayscale Bitcoin Trust (GBTC) plunged in tandem, showcasing a decline in institutional interest.
And this week, the US received a strong jobless claims report, noting 406,000 claims, down from 444,000 claims from last week. That means one thing: Fed does not need to run its money printer hot anymore. And then came the talk about tapering from Fed’s vice-chair Randy Quarles.
“If my expectations about economic growth, employment, and inflation over the coming months are borne out . . . and especially if they come in strong . . . it will become important for the [Federal Open Market Committee] to begin discussing our plans to adjust the pace of asset purchases at upcoming meetings,” she said.
What’s Ahead for Bitcoin?
More institutional adoption, green energy solutions, and Elon Musk’s favorable tweets could provide Bitcoin bulls a backstop to stick to the market. And then, there is a section that would still want to protect themselves against the conspiracy theory-like threat of hyperinflation. Bitcoin acts like a messiah to them.
Technically, Bitcoin should hold $30,000 as interim support if it wants to see itself anywhere near its previous top. A drop below and it could easily enter a free-fall towards $20,000.
Meanwhile, those who want to see the prices at $100,000 should wait for another bearish-to-bullish cycle. But anyway, its crypto — anything can happen in the “Wild Wild West.’