Bitcoin recorded its lifetime best level on Thursday after breaking above a critical psychological resistance level of $20,000 a day before.
The benchmark cryptocurrency topped at $23,776.94 (data from Coinbase exchange), up about 15 percent into the day and 24 percent on a week-to-date timeframe. So it seems, traders increased their bids after assessing a flurry of macroeconomic updates, including the Federal Reserve’s decision to continue its asset purchasing programs and keep its benchmark interest rate near zero.
Stimulus Talks
Bitcoin bulls received further push from the US lawmakers who closed towards finalizing the second coronavirus package worth $908 billion after months of politically-oriented delays. Their approach accelerated after the latest US labor data showed an uptick in jobless claims. That amounted to potential market distress, further catalyzed by fresh lockdowns in the wake of rising COVID-19 cases in the US.
All the factors combined served as ideal bullish indicators for Bitcoin.
For instance, the Fed’s bond-purchasing program pressured the yields on short-dated Treasurys lower. Meanwhile, the US government’s emergency aid threatened to swell the fiscal deficit further after it rose from $4 trillion in March 2020 to over $6.5 trillion as of November 30, 2020.
The US dollar index fell to its two-year low on the same fundamentals.
“People saying Bitcoin is just replacing gold, [totally] miss the big mark,” said Preston Pysh, the co-founder of the Investor’s Podcast Network on Thursday, adding:
“This is ALL about bonds. Good luck convincing the people owning 100 trillion in bonds – which yield nothing – to keep holding when their future face value & coupons are locked in fixed fiat “value”.”
Traders/investors started perceiving Bitcoin as a safe-haven asset like gold. The cryptocurrency extended its 2020 rally to more than 400 percent, pointing to exaggerated gains in the coming sessions should the Fed ignore to taper its policies.
Bitcoin Correction Ahead?
The latest Bitcoin pump also made the cryptocurrency overheated per momentum indicators on both lower and higher timeframes. For instance, BTC/USD showed an additional overbought Relative Strength Indicator reading on its weekly chart, pointing to an imminent downside correction.
Should such a move happen, the pair risks plunging to its previous psychological resistance—and now support—of $20,000. Traders may attempt another rebound higher after testing the said price floor, this time targeting levels above $24,000.
Meanwhile, Bitcoin could first test the $24,000-25,000 area before it plunges lower to around $20,000. In either case, the cryptocurrency expects to move lower in the coming sessions. However, its long-term bullish bias looks unfazed.