You are here: Home > articles > Commodities > Forex > Bitcoin fell due to the Fed. How long will this new correlation last?
Bitcoin fell due to the Fed. How long will this new correlation last?
June 19, 2021 7:45 pmVideo
Latest News
- Euro will return to parity April 12, 2024
- Trading Signals for ETH/USD (Ethereum) for April 12-15, 2024: buy above $3,435 (3/8 Murray – 200 EMA) April 12, 2024
- EUR/USD. Analysis for April 12th. The euro falls down under the pressure of the news background April 12, 2024
- GBP/USD. Analysis for April 12th. A significant event: the pound fell below the 25-figure April 12, 2024
- Trading Signals for EUR/USD for April 12-15, 2024: buy above 1.0620 (-2/8 Murray – rebound) April 12, 2024
- GBP/USD: trading plan for the US session on April 12th (analysis of morning deals). The pound followed the euro April 12, 2024
- EUR/USD: trading plan for the US session on April 12th (analysis of morning deals). The euro continues to fall April 12, 2024
- EUR/USD and GBP/USD: Technical analysis on April 12 April 12, 2024
- EUR/USD: Dovish signals from the ECB and rising PPI April 12, 2024
- EUR/USD. April 12th. ECB meeting: confidence in rate cut increased in June April 12, 2024
- GBP/USD. April 12th. British economy continues to stagnate April 12, 2024
- Analysis and trading tips for EUR/USD on April 12 (US session) April 12, 2024
- Analysis and trading tips for USD/JPY on April 12 (US session) April 12, 2024
- Analysis and trading tips for GBP/USD on April 12 (US session) April 12, 2024
- Weekly Forex Outlook: 12/04/2024 – More inflation data on the way as rate cut bets in disarray April 12, 2024
- Technical Analysis – GBPUSD ticks down to new 5-month low April 12, 2024
- Bitcoin holds above $70,000 as halving event looms – Crypto News April 12, 2024
- Week Ahead – More inflation data on the way as rate cut bets thrown into disarray April 12, 2024
- Bitcoin will thrive during supply crisis April 12, 2024
- Technical Analysis – EURUSD plummets after US CPI and ECB decision April 12, 2024
The high-profile Fed meeting, which led to a sharp rise in the dollar, indirectly led to the fall of bitcoin.
Research has shown that investors moved a record amount of cash overnight to the Federal Reserve after the central bank began paying interest on these investments.
The central bank received $756 billion in its buyback program from nearly 70 market participants on Thursday. The deposit amount is about $172 billion more than last week, and about $235 billion more than on Wednesday, when only 53 investors took advantage of the opportunity.
This is a reverse repo operation, where the money comes mainly from funds and banks sponsored by the state.
Why did these large investors suddenly neglect Bitcoin and channel funds in a different direction?
Until Wednesday, the service offered eligible users a zero return rate. But after the Federal Reserve reported a faster and earlier interest rate hike – in 2023 instead of the previously expected 2024 – the credit line raised its repo interest rate to 0.05%.
Due to the Fed’s quantitative easing program, excess dollar liquidity poured into money market funds. They invested this money in short-term government securities. The increased demand for these securities often led to a decrease in their profitability, which at times went into the negative zone.
Due to negative returns, investors were looking for other assets to invest in and preferred Bitcoin. Excess liquidity due to QE, negative rate securities has proven to be one of the main bullish catalysts for Bitcoin and other digital assets since March 2020. Unlike conventional bonds, the cryptocurrency sector has promised better returns.
But the Fed’s hawkish tone on Wednesday boosted the yields on traditional and safe bonds, and since they are less risky than cryptocurrency or gold, the money that could have previously been invested in bitcoin went to the Fed repo market. “We seem to be seeing a growing inverse correlation between the bitcoin price and the Fed reverse repo market,” said Petr Kozyakov, co-founder and CEO of Mercuryo, a cryptocurrency wallet service.
He stressed that many investors choose the more volatile bitcoin as it promises higher returns. However, given the current market trends, some cryptocurrency investors may be getting rid of their positions as the dollar’s outlook is vital at this point.
And Raoul Pal, founder of Global Macro Investor, nonetheless believes the Fed’s liquidity problems won’t hurt alternative hedging assets like Bitcoin and gold in the long run.
He noted that the US government tends to promote large stimulus packages, the Fed’s balance sheet will expand, the central bank will continue to buy sovereign debt, thereby reducing bond yields, restoring the appeal of crypto assets.
But so far (thanks to the Fed), Bitcoin has broken through the level of 38,610.88 (red dotted line) and consolidated above it. This means that the phase of accumulation and sideways consolidation in the market continues. The closest targets for the fall of BTC/USD are the level 34,708.27, and upon its breakdown – the horizontal level 31,082.82, the lower red dotted level that stopped the price twice (May 23 and June 8).
The material has been provided by InstaForex Company – www.instaforex.com
Related Posts: