The surprise rally took the benchmark cryptocurrency above $11,800, a level it last touched on September 2. Nevertheless, BTC/USD showed signs of extreme downside correction at around the time of this writing, primarily as traders booked their short-term profits as the pair flashed an ‘overbought’ status.
It appeared like a case of a pump-and-dump, albeit Bitcoin w as not showing any signs of extreme selling behavior just yet. But fundamentals showed an increased risk of downside plays ahead, given the nature of Bitcoin’s upside move was itself shady.
In retrospect, Bitcoin rose as Federal Reserve Chairman Jerome Powell spoke during a panel discussion at the IMF annual meeting on central bank digital currencies (CBDC). There, he noted that the US is researching a possible cyber-dollar.
Bitcoin traders consider CBDCs as a default promotional tool for Bitcoin. They think average citizens would learn about the king cryptocurrency after they get exposed to its centralized offsprings, such as a blockchain-based digital token issued by a central bank.
The narrative played in favor of Bitcoin on Monday. As Mr. Powell admitted the Fed’s interest in developing a digital dollar, traders raised bids for Bitcoin.
The scenario was very similar to what happened in October 2019. There, when China’s premier Xi Jinping praised the blockchain technology, the Bitcoin price surged by more than $3,000 in just two days of trading. Later, as the hype faded, Bitcoin’s gains followed.
That served as part of why BTC/USD would give up its gains as the weekly session matures.
Bitcoin vs. US Dollar
What further propelled the Bitcoin price higher – seemingly – was a bearish US dollar.
Some investors are still holding out hopes that the US lawmakers might finalize the long-delayed stimulus package to aid American households and businesses through the ongoing recession.
Nancy Pelosi, the US Democratic speaker of the House of Representatives, said that she is “hopeful” that the White House would agree on a deal before the November 3 presidential election. She stressed that it should pass the senate at least 48 hours before the election.
“The probability of reaching [a deal] looks a little bit higher today than it did on Friday,” Klaus Baader, global chief economist at Société Générale, told FT.
That reduced the demand for the US dollar and thereby benefited Bitcoin. Nevertheless, the extent to which the cryptocurrency rose deserved a downside correction. Bulls should wait for a dip before entering the market.