Bitcoin underwent a major downside correction hours after the Federal Open Market Committee (FOMC) released the minutes of its November 5-6 meeting on Wednesday.
The benchmark cryptocurrency fell by almost $1,000 in the late New York trading session, following up to an incredible price rally that saw it almost doubling its value in just seven weeks. Many traders agreed that BTC/USD merely neutralized its overbought sentiments with a plunge, adding that the pair would resume its rally.
“Expect shakeouts on the way up,” market signals provider Credible Crypto said. “This looks like it was one of them. Still bullish. Invalidation at 15.8k but still think we see new [all-time high] before hitting that level.”
FOMC minutes crossed the wire, but it sparked little immediate movements across the traditional and Bitcoin markets. It was partially because the Fed officials discussed their asset purchase programs’ direction instead of coming with a definite strategy.
Some agreed that the Federal Reserve should continue buying government and corporate debts at the current pace. Simultaneously, many favored “that the Committee might want to enhance its guidance for asset purchases fairly soon,” hinting the central bank might change strategies according to the economic conditions at that time.
The minutes came up with three successive outcomes. First, the Fed could decide to buy more bonds. Second, the central bank could extend the maturity of the bonds it purchases. And last, it could aim to buy the same amounts and maturities of bonds for a longer timeframe.
What It Means for Bitcoin
The FOMC is navigating an outlook covered by the risk that the economic recovery slows down in the winter season amid rising COVID-19 infection rates. Meanwhile, positive developments about vaccines also raise the prospect of a strong economic rebound in early 2021, reducing the need for the Fed’s accommodative tools.
That raised uncertainties about whether or not the Fed will modify its policies in the December meeting. Nevertheless, the bank’s officials asserted that they would remain accommodative until their strategies heal the labor market and achieve more than 2 percent inflation.
FOMC Minutes Show Fed Split Over Asset-Purchase Plans https://t.co/FGbYcfBiz4
— zerohedge (@zerohedge) November 25, 2020
Bitcoin has rallied incredibly higher amid the ultralow interest rates and infinite bond-buying environment. The Fed programs crashed the Treasury yields lower and put additional downward pressure on the US dollar. It left investors with no choice but to seek alternatives in riskier safe-havens like Bitcoin.
The latest FOMC minutes leaves the cryptocurrency — at best — in an uncertain bias. Nevertheless, they do the same to the US dollar, which is now trading near its yearly low. That could allow traders to remain where they are for a while. As a result, Bitcoin could preserve its bullish bias for the time being.
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Author: Yashu Gola