Bitcoin extended its gains in early Thursday trading, reaching almost 9,500 before retracing sharply. The world’s largest cryptocurrency by market capitalization has benefited from its appeal as a hedge against inflation amid unprecedented stimulus by central banks.
Central banks around the globe have aggressively eased monetary policy to address the economic devastation caused by the coronavirus pandemic. At the end of a two day Federal Reserve meeting on Wednesday, chairman Jerome Powell assured that he was willing to do what is needed to aid the US economy. He stated: “It may well be the case that the economy needs more support,” before adding “For now, we think our current stance is appropriate.” Stocks along with other risk sensitive assets were boosted by the dovish tone. News of a potential coronavirus treatment and the easing of some lockdowns also added to the optimistic market outlook.
Excitement is building around the upcoming Bitcoin halving event, set to take place on May 12. The supply squeeze, which happens every 4 years, cuts the rate at which new Bitcoins are created, with miners receiving 50% fewer BTC for verifying transactions. Bitcoin’s supply is capped at 21 million coins and there are roughly 18.3 million in circulation at the time of this writing. Previous halving events have preceded big price increases in Bitcoin, raising hopes of further gains this May. However, skeptics contend that the halving is already priced in – that investors may ‘sell the news’. The shrinking supply of Bitcoin contrasts with the loose monetary policy of central banks around the globe.
Data from Johns Hopkins University shows that coronavirus COVID-19 global cases have risen to 3,204,705 with 227,958 fatalities. Hopes were raised after Gilead Sciences’ remdesivir drug proved effective against the coronavirus in a major study. Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, said the drug cut the time it takes some patients to recover by 31%.
Looking at the Bitcoin daily chart with the S&P 500 Index overlay in blue, we can see the positive correlation since February. Trendline support lies to the downside in Bitcoin and the major psychological level of 10k looms overhead.