Bitcoin has ended a four-day losing trend and is trading steady around $9,000 amid rising speculation the U.S. could eventually adopt negative interest rates.
The top cryptocurrency by market value rose nearly 3% on Tuesday, having suffered losses in the preceding four day – the longest daily losing run in over two months, according to CoinDesk’s Bitcoin Price Index.
Tuesday’s price rise coincided with U.S. President Donald Trump’s renewed call for negative interest rates. “As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the “GIFT”. Big numbers!,” Trump tweeted.
Under a negative interest rate policy (NIRP), banks are required to pay interest rates for parking spare cash (surplus over and above the norm) with the central bank. Essentially, commercial banks are penalized for holding excess cash in a bid to force them to boost lending to businesses and consumers.
However, countries like Japan, which are running the negative interest rate policy since 2016, have still not seen a sustainable uptick in growth rate and remain far from their inflation target. Europe, too, appears to have failed in buttressing growth with the help of negative rates, as noted by The Wall Street Journal.
Even so, President Trump wants negative rates. Interest rates markets, too, are toying with the idea of having sub-zero borrowing costs in the U.S. On Tuesday, fed fund futures contracts fell below zero implying that investors expected negative interest rates in June 2021.
Many crypto market analysts believe that unconventional monetary policies like negative rates and large scale asset purchases are inflationary in nature and could bode well for bitcoin, which has a limited supply and decreasing production over time.
While speaking at CoinDesk's Consensus: Distributed conference on Monday, Saifedean Ammous, author of "The Bitcoin Standard," explained that the cryptocurrency’s appeal lies in the fact that its programmed monetary policy is superior to traditional central banks' reactive monetary policy.
Indeed, traditional central banks are reactive in nature, as their stance will shift alongside changes in the economy. That creates a lot of uncertainty. Contrary to that, bitcoin’s monetary policy is fixed at 21 million units and supply is reduced by half every four years. Bitcoin underwent its third reward halving on Monday, which reduced rewards per block mined by 12.5 BTC to 6.25 BTC.
While negative interest could bode well for bitcoin, currently, the Fed officials don't look inclined to take that route. For instance, Richmond Fed President Thomas Barkin and Chicago Fed President Charles Evans recently voiced opposition to negative rates.
Chairman Powell, too, is expected to dash hopes for sub-zero rates during his webcast with the Peterson Institute for International Economics on Wednesday around 9:00 a.m. Eastern Time (13:00 UTC).
While not likely, if Powell does signal willingness to consider negative rates in future, bitcoin may potentially find bids and rise above $9,000.
While prices ticked higher on Tuesday, so far, a bullish follow-through has remained elusive. The cryptocurrency is yet to find acceptance above $9,000 and is trading around $8,930 at press time, representing a 1% gain on the day.
Some observers expect bitcoin to move sideways for now. “We expect ongoing consolidation between $8000–$9,500 for the short term. Implied Volatility (IV) and trading volume dropped dramatically following the halving, signaling a lack of direction for BTC,” said Matthew Dibb, co-founder and COO of Stack, a provider of cryptocurrency trackers and index funds.
Daily trading volume on futures listed on the Chicago Mercantile Exchange fell by 62% to $345 million on Tuesday, according to data provided by the crypto derivatives research firm Skew. Implied volatility has declined sharply following the halving, as discussed Tuesday.
From a technical analysis standpoint, the path of least resistance appears to be on the downside.
The 5-day average has crossed below the 10-day average, signaling a bearish shift in the short-term trend.
The MACD histogram, too, has crossed into a bearish territory below zero, as noted by popular analyst Scott Melker. That could be considered a warning of a price drop, as it's backed by a "spinning top" candle on the weekly chart, representing buyer fatigue.
On the downside, major support is located at $8,000 (200-day average). A move above the halving day high of $9,183 could bring in stronger buying pressure, opening the doors to $10,000.
Disclosure: The author holds no cryptocurrency at the time of writing.
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