Bitcoin is rising so far on Wednesday as stock markets cheer the U.S. Senate’s decision to approve $484 billion in new coronavirus relief.
The top cryptocurrency by market value is changing hands near $6,970 at press time, representing a 1.6 percent gain on the day. Prices look to have steadied in the $6,930 to $7,000 range over the last hour or so., according to CoinDesk's Bitcoin Price Index.
Meanwhile, the Euro Stoxx 50 – the eurozone’s benchmark equity index – is reporting a 1 percent gain, and there's been a 1.26 percent increase in the value of futures tied to the S&P 500.
The positive moves come after the U.S. Senate passed a new stimulus bill on Tuesday to bolster aid for small businesses, fund more coronavirus testing, and provide support to hospitals facing a deluge of sick patients. The new package comes nearly four weeks after the U.S. lawmakers approved an unprecedented $2 trillion federal stimulus program. This new bill now moves to the House of Representatives for approval before it can be signed by President Donald Trump.
That the trillions of dollars of stimulus is inflationary and could bode well for bitcoin in the long term is generally accepted by now. So far, however, bitcoin has failed to perform as a significant haven asset or an inflation hedge, and has been generally tracking equities through the crisis.
While the cryptocurrency has recovered over 80 percent from the March low of $3,867, the price rally has coincided with the notable recovery in the S&P 500. That said, signs of bitcoin decoupling from traditional markets have emerged this week.
For instance, the West Texas Intermediate (WTI) crude, the main oil benchmark for North America, fell to $37 below zero on Monday, sending shockwaves across the global financial markets.
Bitcoin wobbled slightly following the oil price slide and registered a 4 percent drop Monday. But the decline was moderate considering the scope of the oil losses and the stressed state of the global economy the event reflected.
Further, bitcoin remained steady near $6,850 on Tuesday even though the June futures contract on the WTI fell by 40 percent and the S&P shed more than 3 percent of its value.
More important, classic safe havens like gold and U.S. Treasurys also faced selling pressure on Tuesday, while the U.S. dollar strengthened in the forex markets – a sign of a renewed dash for cash.
A similar cash crunch seen in mid-March triggered a violent price drop. Bitcoin fell by nearly 40 percent on March 12 and printed a low of $3,867 the following day as investors scrambled for liquidity.
This time, however, the cryptocurrency is showing resilience, possibly because the crypto market focus has shifted to bitcoin’s mining reward halving in 19 days.
“Last month’s rush to cash hit bitcoin especially hard. This time around, the impending halving could have mitigated outflows from crypto into cash,” said Marcus Swanpoel, CEO of cryptocurrency exchange Luno.
Bitcoin undergoes the halving process every four years, reducing block rewards by half in order to curb inflation.
Many observers expect the supply-cutting event to bode well for bitcoin’s price. These bullish expectations could force investors to hold their coins while heading into the event.
“It could be that investors are not choosing to sell their holdings as we might expect and instead are staying in bitcoin so as not to miss out on the anticipated gains in the months following the halving,” Simon Peters, an analyst at multi-asset investment form eToro, told CoinDesk.
It remains to be seen if bitcoin remains bid while heading into halving. Luno's Swanpoel thinks more money may come into cryptocurrencies if gold keeps drawing safe-haven bids.
The yellow metal is reporting 2 percent gains at press time and may continue to draw bids, as a V-shaped economy recovery is increasingly looking unlikely.
From a technical analysis standpoint, bitcoin’s immediate bias is neutral because the cryptocurrency is trapped in a sideways channel.
As can be seen, bitcoin has been largely restricted to a range of $6,470 to $7,470 since April 7.
However, within that range, the cryptocurrency printed a bearish lower high at $7,300 on April 18, raising the prospects of a downside move to $6,470. So far, however, the sellers have failed to penetrate the bottom of the range.
The bulls need to keep bitcoin above the descending (bearish) 50-day average at $6,802 to avoid a sell-off.
On the higher side, a move above $7,300 would strengthen the prospects of a range breakout and a rally to $8,000 ahead of halving.
Disclosure: The author holds no cryptocurrency at the time of writing.
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