Bitcoin saw some immense turbulence earlier today that came about due to news regarding the Federal Reserve’s intention to anchor interest rates near zero while they allow inflation to run high in the near-term to support the economy.
This instantly led macro assets like Bitcoin, gold, and other safe havens to rally, with BTC’s price surging from lows of $11,200 to highs of $11,600.
As soon as it tapped these highs, however, the cryptocurrency plunged back down to its recent lows, signaling that investors aren’t too enthusiastic about the short-term implications that high inflation will have on Bitcoin’s price action.
This isn’t the first time that Bitcoin has posted a similar reaction to Federal Reserve-related news, leading one analyst to observe a trend of investors “fading the Fed.”
Federal Reserve Boosts Case for Hard Assets Like Bitcoin with New Inflation Plans
During a speech from earlier today, Federal Reserve Chairman Jerome Powell announced that the central bank would be allowing inflation to climb higher on an annual basis in the coming months and years.
This is being done to support an economy that has been battered by the ongoing pandemic.
Powell described the plan as a “robust updating” of the Federal Reserve’s policy, noting that inflation will be allowed to run past the standard 2% per annum goal that has been outlined in previous years.
Most economists knew that higher-than-average inflation would be imminent as a result of massive increases in government spending, so this news did not come as a major surprise to investors.
It does boost the bull case for scarce assets like Bitcoin and gold, as investors may turn to these assets as a means of protecting their capital.
BTC Price Pumps and Dumps Following Powell Speech
Immediately after news broke regarding this update to the Fed’s policy, Bitcoin’s price rallied to highs of $11,600 before facing an instant rejection that sent it diving to lows of $11,200.
Chart via TradingView.
The pattern this created on its chart isn’t unprecedented, and one analyst observed that Bitcoin has formed nearly identical patterns on many occasions in previous months, always based off of Fed-related news.
He is describing this as the “fade the Fed” pattern, referencing a collection of charts – including the one below – showing the striking similarities between the candle formations.
Image Courtesy of Zack Voell. Chart via TradingView.
Regardless of its short-term implications for Bitcoin’s price, there’s no question that this news will shine a light on the importance of having exposure to hard assets like BTC.
Featured image from Unsplash. Charts from TradingView.
by Cole Petersen on August 28, 2020 at 07:30AM
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