The price of the most popular cryptocurrency, bitcoin, fell below the level of $49,000 on Thursday, but later buyers helped the crypto asset, returning quotes above the $50,500 mark. Fans of the digital asset sought to keep its value above this psychologically important level. However, on Friday, bitcoin, in comparison with recent records, again significantly sank and is trading at around $46,817 at the time of writing this review.
The drawdown of bitcoin quotes mainly involved the comments of US Federal Reserve Chair Jerome Powell, who said on Thursday that he was alarmed by the tightening of financial conditions, as the growth in the yield of US government bonds affects the cost of borrowing. Also, Powell confirmed that the regulator intends to continue to adhere to a soft monetary policy until the situation in the labor market significantly improves. At present, the US remains very far from its goal, namely, from maximum employment and an average annual inflation rate of 2%.
Powell's statements warn of increased fluctuations regarding monetary stimulus. In 2020, bitcoin prices rose four times, and this year - by 66%, and this was mainly because this digital currency almost passed into the status of assets that protect investors from inflation.
According to a study by the blockchain analytics company Glassnode, only 4 million bitcoins are currently in free circulation on the market. The third halving (halving the amount of remuneration to miners) in the bitcoin network, held in May 2020, reduced the reward of miners for adding a new block from 12.5 BTC to 6.25 BTC. This kind of phenomenon further exacerbates the shortage of coins in the market, while businesses are actively investing in the reference cryptocurrency. Major payment apps such as PayPal and Square have generally given their users the ability to buy and sell digital assets.
Crypto market participants are closely monitoring bitcoin addresses that have been stationary for quite a long time. Experts have noticed the following pattern: during the period when old virtual coins start moving, there is a correction in the market. To date, 1,000 bitcoins have been moved and have been inactive since 2010. Therefore, in the light of what is happening in the traditional market, there is a high probability of a new drawdown for both Bitcoin and the entire crypto market as a whole.
The ups and downs in the stock market also significantly affect bitcoin and the entire cryptocurrency sphere. Despite the efforts of the Federal Reserve System to mitigate the current situation, the yield on the 10-year US government bonds again moved to confident growth, and the market reacted to this with a noticeable decline. Recall that about a year ago, due to the pandemic, a significant drawdown of stock indices determined a record drop in bitcoin quotes.
The main impetus for Bitcoin's growth may be the beneficial effect of stimulus packages that are expected to be implemented in developed countries, for example, benefits to US citizens amid the coronavirus crisis. In light of such events, Bitcoin is close to the status of an inflation protection instrument. Perhaps the correction of cryptocurrency quotes has already ended, and in the short term, we can witness their movement to new record highs. And this would be great news, but the likelihood of a corrective decline in value is also too high because large players still have unfulfilled goals of increasing their position within the range of $38,000-43,000.