Bitcoin has so far traded in red this week, but the weekend may have a lot of bullish surprises to offer.
The benchmark cryptocurrency is showing signs of cautious recovery after Jerome Powell’s commitment to pushing inflation above the Federal Reserve’s benchmark target of 2 percent. BTC/USD surged from $11,125 to $11,550 as traders anticipated inflationary policies to sustain near-zero interest rates.
Lower lending rates have so far helped Bitcoin in gaining a supersonic upside momentum. After its crash to $3,859 in mid-March, the cryptocurrency rallied by more than 200 percent purely because the Fed decided to purchase bonds infinitely and push benchmark rates to near-zero.
The outlook was clear: a massive injection of US dollar liquidity into the markets to aid the US economy from COVID-19 pandemic tends to weaken the greenback. That leads to higher inflation in the long-term. So, investors tend to park their cash-based capital in hedging assets, be it equities, gold, bonds, or a relatively new Bitcoin.
Long-Term Bulls
Expectations turned into reality on Thursday when Mr. Powell vowed to tolerate higher inflation in his speech at the first virtual Jackson Hole meeting.
“You still have money supply increasing,” Delano Saporu, founder of New Street Advisor, told CNBC’s “Trading Nation” on Thursday. “Safe-haven investors are looking for another way to unlock value.”
Mr. Saporu added that lower rates will drive many to the safety of gold, a traditional hedging asset. Meanwhile, Bitcoin bulls believe the same factors would drive investors to the cryptocurrency, with the famous Winklevoss Twins anticipating BTC/USD to hit even $500,000 one fine morning.
“If central banks start to diversify their foreign fiat holdings even partially into bitcoin, say 10%, then 45x gets revised upward towards 55x or $600,000 USD per bitcoin, and so forth,” they wrote.
Bitcoin Weekend Outlook
But before Bitcoin reaches a half-million-dollar milestone, it has to cross certain barriers first. The cryptocurrency is now entering its first weekend with a clear outlook on inflation. With the rest of the traditional markets closed for Saturday and Sunday, BTC/USD could show some volatile moves.
As of now, the price awaits a small breakout towards $11,650 or beyond. That should serve as an ideal short-term upside target for a long position. Meanwhile, a pullback and break below $11,400 could see $11,120 serving as a short target.
Nevertheless, breakouts outside the $11,120-$11,500 range, coupled with higher volatility could end up moving the price by larger margins. The blue lines in the chart above represent targets on both the up- and down-ward moves. A special note: Breaking below $11,100 would crash BTC/USD towards $10,500-10,700 area.
Fundamentals support the bulls, anyway.