Bitcoin Marches on $7K as Traditional Markets Cheer Fed’s QE Bazooka
Bitcoin is marching northwards as the Federal Reserve’s extraordinary economic measures boosts risk appetite in the traditional markets.
The top cryptocurrency by market value rose as high as $6,863 early Tuesday, having jumped from $5,700 to $,6600 on Monday, according to CoinDesk’s Bitcoin Price Index.
A major part of Monday’s double-digit price rise came after the U.S. Federal Reserve (Fed) announced it would expand asset purchases by as much as needed (that is, with no upper limit) to help the economy absorb shocks arising from the coronavirus pandemic.
There's now a general consensus in the analyst community that the unconventional policies adopted by the Fed and other central banks could bode well for bitcoin.
“We foresee increasing capital deployment into bitcoin as a result of a ‘lack of confidence’ across central banks and governments during this volatile period,” Lennard Neo, head of research at Stack, provider of cryptocurrency trackers and index funds.
Central banks from New Zealand to Canada have reduced rates to zero and announced bond purchases over the last two weeks to counter the coronavirus-led economic slowdown. The likes of the Bank of Japan and the European Central Bank have instigated negative interest rate policies.
With central banks running out of steam to battle the virus jitters, there's scope for bitcoin to fulfill a non-correlated and decentralized value proposition, according to Neo.
Some observers are also of the opinion that the ongoing crisis will strengthen bitcoin’s appeal as "internet money."
Major cities across the world have been put into lockdown to stall the virus outbreak, causing a shutdown of most commercial activities. So a prolonged crisis could push people toward bitcoin as a decentralized cryptocurrency without a central bank or administrator that can be sent and received anywhere in the world at any time.
“The longer the people can’t go outside to conduct their business, the more useful the cryptocurrency should become as it can be sent and received from the safety of one’s home,” Justin Gillespie, CEO of Titus Investment Advisors and bitcoin trader told CoinDesk.
Charlie Morris, head of multi-asset management at London-based Atlantic House Fund Management said, “the crisis highlights the importance of the internet, and bitcoin is internet money. Gold lives in the real world and the refiners have shut down due to the virus. Bitcoin remains unscathed, which will broaden its appeal and lead to network growth."
"Bitcoin will emerge from this crisis in better shape, with more credibility than it has ever enjoyed before,” Morris said.
While the long-run prospects look bright, the cryptocurrency’s immediate trajectory will likely be heavily influenced by action in the stock markets.
The 90-day correlation between bitcoin’s price and the S&P 500 recently rose to 0.52, the highest level on record, according to Arcane Research.
Global equities are flashing green at press time, possibly in response to the Fed’s all-out effort in combating recession fears. The Euro Stoxx 50 – Europe’s benchmark equity index – is currently up 5.5 percent on the day, while futures tied to the S&P 500 are reporting a 5 percent gain. Stocks in Asia also put in a positive performance.
What’s more, gold, the classic haven asset, has added 4 percent and trading near $1,600. The metal rose by 3 percent on Monday.
As a result, bitcoin could challenge the psychological resistance of $7,000 in the next 24 hours or so. Technical studies, too, are painting a bullish picture
Bitcoin jumped 11.7 percent on Monday, engulfing Sunday's negative price action and signaling a continuation of the recovery rally from recent lows below $4,000.
The 14-day relative strength index has breached the descending trendline in favor of the bulls, while the MACD histogram has crossed above zero, confirming a bullish reversal.
Next, resistance at $7,139 (March 20 high) could come into play.
“With the price now making higher highs and higher lows in the short term, this suggests we could get back to $7,000 in the coming days," Simon Peters, analyst at multi-asset investment platform eToro told CoinDesk. "However, we'll have to see if the markets have enough momentum to break and importantly stay above this level, or if we see the $7,000 level hold as resistance and the price retreat, as we saw March 20.”
A failure to make a sustained move above the resistance of the descending 5-week moving average at $6,910 could yield a drop to $6,500.
The outlook, however, would turn bearish only below Monday's low of $5,686. At press time, bitcoin is changing hands near $6,720, according to CoinDesk's Bitcoin Price Index.
Disclosure: The author holds no cryptocurrency at the time of writing.