Bitcoin Weekly Outlook: Rising yields continue to threaten the uptrend
It happened last weekend: That’s when Bitcoin had managed to close above $40,000 for the third time since January 8.
But once again, the benchmark cryptocurrency was lured into a bull trap by day traders who sold off said level to secure short-term gains.
As a result, Bitcoin opens the new week in negative territory, with Cryptosoft traders still assessing the short-term market tilt against a basket of macro fundamentals, most notably the recent surge in US 10-year yields above their January 11 peak.
A sell-off in bond markets tends to negatively impact safe-haven assets such as bitcoin and gold, which generally do not yield.
However, traders in the cryptocurrency space are expecting bigger upside. That’s because of the US Federal Reserve’s decision to keep its benchmark interest rate near zero until 2023 and to buy government and corporate bonds at a rate of $120 billion a month until the economy reaches maximum employment.
Meanwhile, analysts note that US President Joe Biden’s $1.9 trillion coronavirus package would put pressure on the US dollar. In turn, the aid would encourage investors to seek shelter from consumer price inflation triggered by the greenback, which could push up bitcoin prices.
So far, inflation expectations have poured cold water on safe-haven rallies.
Economic recovery offsets bitcoin’s bullish bias
A rise in benchmark yields pushed gold prices lower as it marked renewed risk-on optimism in the market.
Investors instead poured capital into risk-off assets, sending the US benchmark S&P 500, blue-chip Dow Jones and tech-heavy Nasdaq Composite up 4.65 per cent, 3.89 per cent and 6.01 per cent respectively last week on expectations of a stronger economic recovery for the US.
Bitcoin (Go to buy bitcoin cheap guide) also rose over the same period, but its rally was triggered by speculative mania prompted by the outspoken endorsements of Tesla and SpaceX founder Elon Musk. The cryptocurrency reached $40,000 – as mentioned above – but only briefly, indicating bullish uncertainty above said resistance level.
Bitcoin slips back below $40,000 after a brief breakout. source: BTCUSD on TradingView.com.
The cryptocurrency enters the new weekly session with a similar bias conflict. The most important thing to watch is how longer-term Treasury yields have moved higher. Last week, the 30-year rate ended at its highest level since 20 February 2020. Meanwhile, the US dollar poses further downside risks to Bitcoin.
What’s in store for the week?
The week ahead looks eventfully quiet as Chinese New Year takes stock markets offline from Thursday. Meanwhile, the US will release its inflation figures on Wednesday (a higher reading is likely to push bond yields higher).
This will be followed on Friday by the University of Michigan’s consumer confidence report.
Fed Chair Jerome Powell, ECB chief Christine Lagarde and BoC Deputy Governor Timothy will also speak about their economic outlook this week.