Bitcoin was more or less copying its top safe-haven rival, gold, at the beginning of this week.
The BTC/USD exchange rate opened lower on Monday, falling more than 1 percent to $11,590 ahead of London opening bell. So far into the day, the pair was holding $11,600 as its intraday support level.
Gold exhibited a similar price move. The spot XAU/USD rate dived 0.29 percent to trade near $1,959 an ounce. The plunge appeared after the pair established an intraday high at $1,966.77 an ounce, showing clear signs of profit-taking sentiment among daytraders.
Like gold, Bitcoin, too, was correcting lower upon hitting an intraday high at circa $11,729 per token. Daytraders sold the said top to secure their short-term profits, causing the trend to flip towards $11,550.
The stark similarity in the price moves on gold and Bitcoin came on the backing of the very same fundamentals. On Thursday last week, Federal Reserve chairman Jerome Powell confirmed that his office would raise inflation beyond their pre-specified target of 2 percent.
Bitcoin against Inflationary Outlook
It was easier to predict that the US central bank will keep interest rates lower, as well. The Fed has kept them near zero since March 2020 to aid the US economy through the rising coronavirus pandemic. This policy reduced investors’ appetite for cash-based safe-havens, hurting the US dollar.
The US dollar index declined by more than 10 percent since March 2020 to hit a 27-month low as of August. That further sent investors to seek better yields in US equities and safe-haven markets. As a result, gold and US indexes like the S&P 500 surged to their record high levels.
Meanwhile, Bitcoin logged a 200-percent-plus bull run to almost hit $12,500, a level it last touched in July 2019.
The rally appeared because of a strong narrative. Bitcoin yes-men project the cryptocurrency as an ultimate hedge against the unlimited dollar supply, for the asset is scarcer with its 21 million market cap.
Public traded company MicroStrategy, billionaire investor Paul Tudor Jones, and Canadian graphic firm Snappa have all invested in Bitcoin for the very same reason: to protect themselves from a falling US dollar.
Josh Rager, the founder of Blockroots.com – an online learning platform for crypto traders, said Bitcoin risks falling towards $11,500 and below. Nevertheless, the analyst pointed out the likelihood of a sharp pullback to the upside, given a higher buying pressure near the lower levels.
“The weekly candle shows that buyers were interested in the sub $11,550,” said Mr. Rager. “And there isn’t much-holding Bitcoin between the current price and $13ks on high time frames. I personally think it’s time BTC makes way for $12k+ again.”
BTC/USD was trading $11,603 at the time of this writing.