Bitcoin pared its Monday losses after logging a surprising intraday trend reversal.
The cryptocurrency rebounded by as much as 7.82 percent from its session low near $8,895.
It is now back to targetting $10,000 as the Federal Reserve announced it would extend its corporate bond-buying plan.
Bitcoin price climbed Tuesday, logging a dramatic retracement after the Federal Reserve signaled its latest efforts to support the U.S. economy through the ongoing pandemic.
The BTC/USD exchange rate swung by as much as 7.82 percent after settling an intraday low yesterday at $8,895. Buying demand in the world’s leading cryptocurrency got a boost after the Fed announced that it is purchasing up to $250 billion in individual corporate bonds.
Bitcoin price chart from TradingView.com showing its recovery. Source: TradingView.com
Earlier, bitcoin had plunged by more than 10.10 percent from its June 10 high of $10,011. Its downside move came mostly in the wake of a similar correction trend in the U.S. stocks. The positive correlation between Bitcoin and the U.S. benchmark S&P 500 has grown since March 2020 crash.
The proximity between the two markets continued this week. Both fell drastically on Monday, with Bitcoin leading the losses after taking cues from the S&P 500 futures. Nevertheless, opportunistic traders jumped back into the markets as the sessions were on, pushing them up using the Fed narrative.
“This is yet another sign the Fed is going to do everything under their power to help liquidity,” Ryan Detrick, a senior market strategist for LPL Financial, told WSJ. “Worries over a second wave? No worries, the Fed is here.”
More Gains Ahead for Bitcoin
The Fed’s stimulus efforts so far have helped push both Bitcoin and the S&P 500 from their March 2020 lows. Analysts believe that the central bank would keep acting like a stabilizing force for these markets against fears of a second wave of virus infections in the U.S. and China.
Traders are looking bullish on Tuesday as well. Futures tied to the S&P 500 were up 1.43 percent ahead of the European session open. It hints that the U.S. benchmark would open the day in the green after the New York opening bell. Similarly, Dow Jones and Nasdaq Composite are also looking at a healthy start.
Table from WSJ.com showing futures market data. Source: WSJ.com
As Bitcoin’s erratic correlation with the U.S. stocks grow this week, the cryptocurrency could capitalize on the optimistic U.S. stock market to test its hardcore resistance level of $10,000.
“For as long as the FED can print money and do whatever they want, your technical analysis is useless calling tops is pointless,” a pseudonymoyus trader wrote on Twitter.
Meanwhile, specific technical metrics in the stock market, such as the Relative Strength Indicator, warns that the equities stand overbought. That amounts to a negative correction, which, in turn, poses risks to Bitcoin’s bull run towards or above $10,000.
“After hours for stocks are all up. Kind of feels like a trap. We had all day to make some moves and nothing happened. Kind of has me worried,” said another trader.
Bitcoin’s Relative Strength Indicator, in comparison to stocks, reads neutral. The cryptocurrency has adequate room to move in either direction.
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