Major Bitcoin takeaways
- Bitcoin saw an incredible upturn early in the morning on Wednesday, surpassing $ 55,000.
- However, the decline in US bond yields caused traders to sell the multi-week top.
- The underlying bullish sentiment kept Bitcoin above critical support levels as the market waited for the US consumer price inflation report.
Bitcoin saw an aggressive short covering move from its previous week’s low, rising as much as 13.24 percent, breaking above $ 55,000 on Wednesday.
The strong uptrend marked the cryptocurrency’s second consecutive weekly gain, led by a series of supporting catalysts that ranged from booming institutional adoption to lower US Treasury bond yields and a weaker US dollar. As the Asian session matured, Bitcoin showed that buyers had not followed up, leading to a correction that reduced its market cap by about $ 10 billion.
Inverse correlation between bitcoin and yield
The consolidation of 10-year US Treasury note yields appears to have pushed Bitcoin bears back into the US dollar – to take some profits off the table. The cryptocurrency continued to hold its underlying bullish sentiment in check as it retained support above the crucial price level between $ 52,000 and $ 54,000.
The cryptocurrency market has responded strongly to the surge in longer-term US Treasury bond yields lately. The 10-year note offered an interest yield of less than 1 percent at the beginning of the year. Nonetheless, it was 1.596 percent on Tuesday, fueled by an ongoing bond sell-off.
Investors sold Treasuries on signs of better-than-expected economic growth in the US. This caused money managers to move away from risk-free markets and invest their capital in assets that would benefit most if coronavirus restrictions were lifted. The strategy resulted in downward revisions in overvalued assets, including bitcoin and technology stocks, and resulted in a surge in the banking, tourism and energy sectors.
Senate approval of President Joe Biden’s $ 1.9 trillion coronavirus package has also boosted sentiment for U.S. growth. But this was accompanied by fears of higher inflation, which many Bitcoin bulls are predicting as the best investment case for the cryptocurrency.
The February release of the US consumer price index on Wednesday would provide further clues as to the level of inflation and its potential impact on Bitcoin.
Investors have raised their rate forecasts in response to rising bond yields. A recent poll by Bloomberg found that economists’ yoy expectations for the February CPI were 1.7 percent. Meanwhile, the Federal Reserve’s benchmark index, the consumer spending price index, is hovering 1.5 percent.
The US Federal Reserve has repeatedly announced that it will buy $ 120 billion a month in national and corporate debt and keep lending rates close to zero, provided that inflation does not rise above 2 percent. Given the flow of the Bloomberg poll, the Fed could hit its target by 2022, which would mean a possible rate hike in early 2023.
Bitcoin to the moon?
That put Bitcoin on an annual upward trend. Many analysts expect that inflation risks will lead individuals, institutions and companies to cryptocurrency because of its gold-like scarcity. Companies like Tesla, MicroStrategy, Square, Meitu, and others have already included Bitcoin on their balance sheets as an alternative to cash.
“When you think of bonds at this level, this idea of a balanced portfolio of 60 to 40 is a bit problematic,” Cathie Wood, founder of ARK Investments, told CNBC in a recent interview. “We’ve been through a 40 year bull market in bonds. We wouldn’t be surprised to see this [Bitcoin] become part of these percentages. Maybe 60 equity, 20, 20. “
Ecoinometrics newsletter author Nick made a similar uplifting statement for Bitcoin in its latest issue. The analyst noted that Bitcoin’s gains over the past two weeks show its resilience to the bond market sell-off, despite rising bond yields.
“If rising yields are causing serious mortgage problems or another stock market crash, you can bet the Fed will act as usual,” he added.