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Bitcoin has pierced above the $20,000 level for the first time in history.
The flagship cryptocurrency logged a surprising upside rally in the pre-market New York trading session Wednesday, hitting an all-time high of $20,822 before turning lower modestly. Analysts said it got the bullish boost from institutional capital’s arrival into the crypto space as mainstream investors looked for alternative hedging assets against fears of long-term inflation.
BofA Fund Manager Survey of the most crowded trades
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— Tracy (𝒞𝒽𝒾 ) (@chigrl) December 15, 2020
Bitcoin Fundamentals
The cryptocurrency was on a tear after the Federal Reserve announced a set of accommodative fiscal policies to cushion the US economy from the impact of the COVID-19 pandemic. Their measures included a near-zero lending rate tool alongside a commitment to purchase governments and corporate debts indefinitely.
Bitcoin is maintaining its intraday gains near $20.7K. Source: BTCUSD on TradingView.com
While the framework did help contain the damage caused by the pandemic, it left the bond market oversold, pushing their short-term yields into negative territory. In simple words, investors who purchased short-dated Treasurys risked losing a portion of their investments at the time of bond maturity.
That marked Bitcoin’s rise as an alternative hedging asset, the same as gold and silver.
Between March 2020 and today, the cryptocurrency rose by 439 percent (data from Coinbase). Meanwhile, it received further bullish support from the US government’s $2.3 trillion COVID-19 stimulus package that sent the US dollar index lower.
US Dollar Index has fallen by 12.48% from its mid-March high. Source: DXY on TradingView.com
Factors at Play This Week
On Wednesday, both the Fed and the government stimulus factors are at play.
The central bank will share its futures guidance at 1430 EST, with experts noting that it would keep buying Treasurys at the same pace while maintaining rates near zero. On the other hand, the US Congress is also close to finalizing the second stimulus package to aid an ailing labor market amid the rising coronavirus cases.
The US dollar index fell to its two-year low on Wednesday as a result.
“Gold, dollar, often have big moves at that time,” said Lyn Alden, the founder of Lyn Alden Investment Strategy. “If the Fed is less dovish than expected, bitcoin could get a correction. If it keeps most of this rally after that meeting, that’s bullish AF.”
