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How Fed Has Spilled Cold Water Over Bitcoin’s $20K Target – For Now

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Bitcoin (Symbol: BTCUSD) was going to hit $20,000 by the end of this year on inflation worries. Unfortunately, that now seems unlikely to happen.

It is visible in the manner the world’s leading cryptocurrency reacted to the Federal Reserve’s new approach to devising US monetary policy. Chair Jerome Powell surprised the safe-haven bulls Thursday morning by showing a more relaxed stance on inflation.

He pledged to keep the rate at an average of 2 percent over time but also promised to act if it turns excessive.

Bitcoin traders had expected more–a dramatic speech that points to a period of the consistently higher inflation rate. But many ignored that the Fed’s preferred target of 2 percent inflation rate always fell short of getting hit. Ever since the US central bank launched the policy–back in 2012, inflation rose at an average of 1.4 percent only.

That was also the period of the Fed’s longest expansion post an economic crisis of 2008, which ultimately failed to raise inflation. And now, even when the US central bank is ready to tolerate higher inflationary pressure, it has not provided a clue about whether or not it would continue its asset purchase program to support the economy.

Seesaw Price Moves

Bitcoin rose by more than 200 percent between March and now, only because of the Fed’s aggressive stimulus measures and lower interest rates.

While the central bank admits that it would keep rates near zero, a cast of doubt over its bond purchases have stalled the Bitcoin bull run that, as many expected, would take its price to $20,000 in 2020.

The uncertainty heightened during Mr. Powell’s speech on Thursday morning. Bitcoin rose 2.86 percent to near $11,600 within minutes after the Fed chair pledged to raise inflation. But the crypto fell 4.08 percent to $11,120 after Mr. Powell decided to act on higher-than-expected inflationary levels.

Bitcoin rises and plunges in a row after Powell’s speech. Source: TradingView.com

Like Bitcoin, fellow safe-haven asset, gold, also logged a similar seesaw move during Mr. Powell’s keynote. The precious metal inched higher first, but then swang back to lower levels on anticipation of moderated inflation overshoots.

A $20K Bitcoin Will Take Time

US government bonds shed more light on how investors perceive the inflationary outlook. Yields on longer-term Treasury debt rose during the Thursday sessions, pointing to lower bond rates.

us bonds, yields, government debt

US 10-year bond slips after Powell’s speech. Source: TradingView.com

On the other hand, the prices of shorter-term US Treasury bonds rose higher while their yields plunged. The polar opposite moves showed that the Fed’s commitment to maintaining short-term interest rates near zero would support demand for Treasurys. At the same time, a higher inflation rate would keep long-term bonds less appealing.

Even the Fed didn’t vow to buy more longer-term debts. The central bank will likely speak more about it in the release of its monthly minutes on September 15.

As for Bitcoin, it expects to grow higher as US real yields fall in the medium-to-long term owing to higher inflation tolerance and lower interest rates. But the fact that the Fed will keep intervening whenever the inflation gets too high will also keep the cryptocurrency guessing about its upside continuation.

Bitcoin could still hit $20,000, its record high, but it appears 2020 is not the year for the said milestone.



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El Salvador to airdrop $30 in Bitcoin to every adult citizen

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The president of El Salvador  has announced the government will airdrop $30 worth of Bitcon (BTC) to every adult citizen of the country.

The announcement was welcomed by Bitcoiners, with influencers speculating El Salvador’s government wil need to purchase the required BTC it intends to distribute adding more than $100 million in buying pressure on markets.

Quickly googled estimates of the adult population of El Salvador varied, with onchain analyst Willy Woo tweeting that Bitcoin’s global user base will grow by 2.5% thanks to the influx of 4.5 million Salvadorians.

Others placed the Salvadoran adult population as high as 6.5 million (which is actually the total population), with Yahoo Finance anchor Zack Guzman using the figure for some rough back of the envelope calculations suggesting that $195 million worth of Bitcoin will be airdropped across the country.

Exact figures are hard to find but Statista shows that in 2019 the population aged 15 and above was 4.72M.

However, crypto Twitter’s euphoria may be be slightly premature, as local publication Prensa Latina notes El Salvador’s citizens will only receive the free Bitcoin after downloading the government-issued cryptocurrency wallet application.

The news was announced during a June 25 press conference, with President Bukele stating the government’s “wallet app will even work anywhere with a cell connection, and you won’t have to have a cell plan for the app.”

President Bukele also stated that the country’s much-celebrated Bitcoin law recognizing BTC as legal currency nationwide will come into effect on September 7.

Related: Opposition poses constitutional challenge to El Salvador’s Bitcoin law

El Salvador’s Bitcoin law was passed roughly two weeks ago. While the move has been praised by the global crypto community, the legislation has faced opposition from a minority political party and the World Bank.