Bitcoin has chalked up an impressive rally ahead of the Federal Reserve's annual economic symposium in Jackson Hole, Wyo., on Friday. Analysts say the virtual event could strengthen cryptocurrency's bullish trajectory.
Bitcoin was trading at a three-month high of $50,200 at press time, having recorded gains for a fifth consecutive week. That's the longest weekly winning trend since November, CoinDesk 20 data show.
"After Jackson Hole the dollar could see some depreciation, and with institutions missing out on bitcoin in the last two weeks and now slowly coming back to work for September start, this will trigger renewed inflows into the cryptocurrency and also equity," Laurent Kssis, managing director of exchange-traded products at 21Shares, told CoinDesk in a Telegram chat.
The Jackson Hole Economic Symposium, which is sponsored by the Federal Reserve Bank of Kansas City every year, hosts prominent central bankers, finance ministers, academics and financial market participants. Until a few weeks ago, some observers were suggesting that Fed Chairman Jerome Powell would use the event to set the stage for an early scaling back of the central bank's asset-price inflating stimulus measures.
Those expectations have been watered down in recent days, with the renewed spike in coronavirus cases in the U.S. and other parts of the world, as ForexLive's Justin Low noted. The Fed may now want to gauge the impact of the virus's resurgence on the economy before signaling a taper, or winding down of stimulus.
That may revive the global macro trade of sell dollars and buy everything denominated in terms of the greenback seen in the second half of 2020.
"We expect the Fed to remain dovish and offer no surprises," said Matthew Dibb, co-founder and chief operating officer at Stack Funds. "If this is the case, we will see continued risk-on across most markets."
Bitcoin nearly quadrupled to $40,000 in the final three months of 2020 as the dollar nosedived. The cryptocurrency reached a record high of $64,801 in April before taking a beating in May and June.
The recent bounce from July lows of below $30,000 looks impressive, considering it has happened alongside an increase in the dollar index (DXY), which measures the greenback's value against major currencies.
The DXY reached a nine-month high of 93.73 on Friday and was recently at 93.25. The ascent was in part fueled by the minutes of the June Fed meeting confirming that the central bank may begin tapering later this year, as Marc Chandler, chief market strategist at Bannockburn Global Forex, noted in a blog post.
The minutes, therefore, look to have stolen some of Jackson Hole's thunder. So even a hawkish comment from Powell later this week may not significantly deteriorate the risk sentiment.
Other crypto-specific factors also support a continued rally. "The calmness of the $50,000 break leads me to think it could be sustainable with minor setbacks," Patrick Heusser, head of trading at Crypto Finance, said.
The market does look calm, with the perpetual funding rate – or the average cost of holding long positions in the derivatives market – still below 0.010%, according to Glassnode. That's significantly lower than highs above 0.10% observed during the bull frenzy of the first quarter and suggests little or no speculative froth in the market.
"Looking at funding and the options market, this rally still appears to be spot-driven," Dibb said. "Our expectation is that this break of psychological resistance will likely result in a rotation back to bitcoin in the coming weeks, with the next target of $60,000."
The cryptocurrency's rally from July lows has been backed by strong hands, according to data analytics firm IntoTheBlock.
A minor correction, however, cannot be ruled out as short-term technical indicators are pointing to overbought conditions. That may weigh heavily on alternative cryptocurrencies like solana and cardano which have outperformed bitcoin in recent days.
"Recently the market has seen modest inflows in bitcoin but rather large exchange-traded product inflows in all other coins especially Solana, Polkadot, Cardano and, of course, ether," Kssis said. "The performance is attributed to bitcoin’s rise, which may see a reset at $50,000 and a short correction before what will be anticipated inflows from institutions back in September."