Bitcoin (BTC) dropped lower on Thursday, with dimming stimulus hopes and a resurgence in the coronavirus cases in the US and Europe casting doubts over the global economic recovery.
The BTC/USD exchange rate established an intraday low at $11,263 as of around 0900 UTC, suggesting that it could correct further lower in the US trading session ahead.
The catalyst behind the pair’s dip was a stronger US dollar that picked up strength after US Treasury Secretary Stephen Mnuchin shattered hopes of finalizing the second stimulus relief bill before the presidential election on November 3.
Bitcoin, which many consider as a hedge against devalued fiat currencies and higher inflation, rose 57.73 percent since the start of this year.
The cryptocurrency ascended especially as the global central banks took unprecedented measures to aid their economies through the coronavirus-led recession. That included ultralow lending rates, infinite bond-buying, and record-shattering stimulus aids from governments.
Traders anticipated that Bitcoin would repeat its bull run upon the finalization of second fiscal aid. But with the package stuck amid a political debate, traders started moving back to the safety of the US dollar. That reduced the appeal of Bitcoin and every other market that benefited from the stimulus.
Bitcoin correlation with all three Wall Street indexes. Source: TradingView.com
The US stock futures, for instance, fell in pre-trading session Thursday, just as Bitcoin. It hinted that the S&P 500, the Dow Jones, and the Nasdaq Composite are all going to open in negative areas at the New York opening bell. The reason is the same: an intraday appetite for the US dollar in absence of a stimulus.
…there is more than just one factor at play, according to Jim McCormick, global head of desk strategy at Natwest Markets. The analyst told the WSJ that setbacks on the vaccine, as well as worsening coronavirus situation, have also contributed equally to worsen the risk-on mood.
“Markets are also reflecting investors’ reluctance to make any large bets until after the election when the risk of contested results has been eliminated,” he added.
The seesaw macro outlook has kept Bitcoin’s uptrend in control as well. Traders cannot hold leveraged buys over fears of being punched out on any bad news about the stimulus or coronavirus. At the same time, long-term investors are looking at every dip as an opportunity to accumulate more. They expect a stimulus deal down the road, with hopes up for a clear Joe Biden win in the election ahead.
Overall, short-term traders are defending the $11,700-resistance level, and the long-term ones are underpinning prices. It is keeping Bitcoin sideways at best.
A clear bias expects to arrive if BTC/USD breaks below $10,000 or closes above the $12,500.