Bitcoin rebounded on Monday as traders pinned their hopes on central banks introducing stimulus measures against the coronavirus outbreak.
The top cryptocurrency surged by up to 2.01 percent to hit an intraday high of $8,693.35, following a week of depressive and disorderly trading in both spot and derivative markets. But most importantly, the upside move came in tandem with similar price actions across the Asian and European markets, validating that bitcoin’s correlation with risk-on assets was growing.
Stimulus Hopes
The spreading of Coronavirus sent bitcoin, as well as global markets in turmoil.
The Dow industrials registered its deepest decline since the 2008 financial crisis, falling by 14 percent in just seven days of trading. Wall Street’s benchmark, the S&P 500, too plunged by 11 percent, prompting investors to believe that the central bank will introduce safety measures.
They believe the Federal Reserve could introduce another rate cut when it meets this month. Last week, chairman Jerome Powell also confessed that they were assessing the impact of Coronvirus on the US economy.
Outside the US, governments are already taking measures to support their economy against the Coronavirus pandemic. Japan, for instance, hinted that it would increase its asset purchases and inject liquidity into the banking system. In Europe, Italy confirmed that it would bring €3.6bn liquidity into the market to tackle the virus impact.
#Italy unveils €3.6bn stimulus to tackle coronavirus. Govt to introduce tax credits for comps that reported 25% drop in revenues, as well as tax cuts and extra cash for the health system. Package will amount to 0.2% of GDP.https://t.co/vGGET0neDC pic.twitter.com/m56HXquTew
— Holger Zschaepitz (@Schuldensuehner) March 1, 2020
The new economic defense led analysts at Goldman Sachs to predict similar measures across the world’s major economies. They expected the UK, Canada, India, Australia, as well as South Korea to announce new rate cuts. They also hoped that the Fed would slash its lending rates by 0.5.
Bitcoin Eyes Recovery
Hopeful fiscal policies have raised hopes for bitcoin to rebound further into the week. The cryptocurrency in February gave up a large part of its yearly gains to Coronavirus. Experts believe fund managers could redirect some portion of the new capital into bitcoin for its higher risk-reward profile.
Looking for the catalyst that propels $BTC to new highs – its coming. Just like in 2011, we’re about to see massive global, coordinated, gov’t stimulation.
Monetary policy isn’t enough anymore; enter fiscal stimulus! Money is now worthless.
Preview: https://t.co/NjPSQBjBnM
— Jeff Dorman, CFA (@jdorman81) February 26, 2020
But technical indicators point to a steep downside correction. Bitcoin on the daily chart has slipped below its two key moving averages – 50 DMA and 200 DMA, that has raised its probability to continue the downtrend.
“Euphoria aside, price is still in the down channel,” said Teddy Cleps, a prominent market analyst. “Down channels have a bull bias as they tend to break upwards. Closing above it would put a price on a path to 9150 – previous support now resistance.”