Bitcoin fell along with the S&P 500 as the Federal Reserve said it would reduce its monthly bond purchases by $120


Bitcoin (Bitcoin) The price briefly fell below $44,000 on Thursday as the U.S. dollar strengthened after the minutes of the Federal Reserve’s policy meeting revealed its intention to limit bond purchases this year.

Bitcoin faces the risk of $45,000 becoming a new resistance

The spot price of BTC/USD fell 1.71% to a new low of US$43,955 so far this week. The plunge of the currency pair appears to be part of a technical correction that began after the price rose by 64.42% and hit a three-month high of $48,176 on Saturday.

Bitcoin daily price chart. Source: TradingView

Bitcoin’s recent price drop is also in line with similar market biases on Wall Street. For example, the benchmark S&P 500 Index fell 47.81 points, or 1.1%, to 4,400.27 in the last few trading sessions on Wednesday.

Similarly, the Dow Jones Index and the Nasdaq Composite Index also fell 1.1% and 0.9%, respectively. In addition, CNBC’s pre-market data showed that futures linked to the Wall Street Index fell on Thursday, suggesting that the market may continue to fall after the opening of New York late on Thursday.

On the other hand, the dollar index (DXY) Benefit Decline from risky markets. The index measures the strength of the U.S. dollar against a basket of major foreign currencies, soaring 0.39% to a six-month high of 93.50, before a slight correction.

The daily chart of the US dollar index highlights the reverse head and shoulders structure. Source: TradingView

Gradually reduce the alarm

Federal Reserve July 27-28 meetingReleased on Wednesday, it showed a gradual consensus to lift its monthly purchases of US$120 billion in U.S. Treasury bonds and mortgage-backed securities.

Most central bank officials agree The U.S. economic recovery is on the right path, and this is an appropriate reason to slow down the pace of asset purchases. But they did not disclose when the scale-down will begin, and there are only three FOMC meetings left to attend this year.

Officials also agreed that if the economic recovery continues as expected, reducing the scale of asset purchases will enable them to raise interest rates. But the minutes of the meeting showed that they said they would like to see stronger evidence that the labor market has recovered from the aftermath of the COVID-19 pandemic.

Minutes of the meeting regarding inflation show Fed officials expect a temporary outbreak. They emphasized that after excluding the volatile food and energy categories, their preferred index of inflation was 3.5% in June-the highest level in 30 years-but they expect inflation to fall because consumer price increases are temporary .

Bullish exhaustion?

Specifically, over-purchasing debt will eventually cause the yield of U.S. Treasury bonds to fall to a low of 0.66% in 2020. Even the rebound in early 2021 kept yields near historical lows.The global trend is the same, where the amount of debt that has recently provided a negative yield is USD 16.5 trillion, The peak of six months.

Long-term government bond yields in advanced economies are falling.Source: Fred

The low rate of return triggered a series of rotations in the stock market, and the index hit a record high. The S&P 500 index has risen 19.01% so far this year, setting a record high of 4,480.26 points, while the Dow Jones index has risen 16.30% so far this year, setting a record high of 35,369.87 points.

Bitcoin, as a Safe-haven alternatives to the U.S. dollar and gold In 2020, it will also rise with the Wall Street Index. In 2021, it hit a record high of close to US$65,000, and analysts believe that the Fed’s loose monetary policy is one of the main catalysts behind its price increase.

But the biggest question remains whether the reduction will divert capital from the booming market during the quantitative easing period, especially after the Fed launched the easing policy in March 2020, Bitcoin’s profit margin has exceeded 1,000%.

Jon Ovadia, founder of the South African cryptocurrency exchange Ovex, pointed out that the decline in the cash flow of the Federal Reserve’s vaults may prevent the growth of Bitcoin and similar risky assets in the short term.

related: Cause and effect: If the stock market crashes, will the price of Bitcoin fall?

“Especially the factors that support Bitcoin’s growth are not just the Federal Reserve’s intervention to keep the economy healthy,” he explained, adding:

“However, on the macroeconomic front, Bitcoin investors will have to consider future impacts and stick to the abundance of other fundamentals in the crypto market in order to keep prices at record levels.”

By the first quarter of 2022, Bitcoin will hit a record high

James Waugh, founder and CEO of Digital Finance Group, called the latest price drop in Bitcoin and the stock market “reactionary” in nature. However, he emphasized that due to inflationary pressures, risk assets will maintain a long-term upward momentum.

related: Bloomberg strategist for the 50th anniversary of the Bretton Woods system said that Bitcoin will replace gold

He said: “It will take time for nominal inflation to return to pre-pandemic levels.”

“I still believe that we are still on track to reach a record high between the fourth quarter of 2021 and the first quarter of 2022.”

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