Bitcoin price rose sharply following the US Federal reserve announcement of an unlimited stimulus package aimed at stabilising the economy from the Covid19-driven crisis. The news triggered immediate action in the crypto market as Bitcoin investors responded with expectations of a recession looming.
Part of the Fed announcement read
The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions
Bitcoin rises by over 12% in one hour
The digital asset’s value rose by 12% within an hour of the announcement moving from $5,860 to $6,620. Since then Bitcoin has sustained the upward price surge and is trading at $6,730 at the time of this writing.
Bitcoin had turned bullish over the weekend, having broken past the $6,400 level that analysts had marked as a critical resistance level. The Fed announcement thus provided the perfect catalyst to extend the bullish momentum and turn the $6,400 resistance into the new support level for its upward surge.
Bitcoin is now in bullish territory and is likely to remain there as long as it can sustain its price above this level and test the new resistance level set at $6,900. In the event of a retracement, the asset needs to remain above $6,200 that is considered by analysts as a suitable support level.
Gold follows Bitcoin upward surge
Gold had a similar spike in its price as mainstream investors expressed their declining confidence in the financial markets. The precious metal considered a classic safe haven asset rose by 2% within an hour of the announcement by moving from $1,494 to $1,524. Despite the surge being quite low in comparison to that of Bitcoin, the movement is quite significant as Gold is a relatively less volatile asset.
Bitcoin’s price action correlation with Gold will reignite the safe-haven status debate as investor sentiments for the two assets remains similar, for now. A prolonged positive correlation between Gold and Bitcoin would likely put the issue to rest and reinforce the virtual currency’s status as digital gold.
Bitcoin mimicking Gold is pushing safe haven asset narrative
So far, both assets have performed remarkably in the midst of a global crash that has affected most assets in the conventional markets. Bitcoin initially fell by over 50% due to panic selloff of the digital asset following the spread of the covid19 epidemic. However, Bitcoin rebounded quickly and has been on a sustained upward trajectory since then.
This has evoked memories of Gold price action during the 2008 financial crisis in which the metal’s value fell by over 30% before rising steadily in the following months to cement its status as a safe haven asset.
Bitcoin appears to be following a similar pattern and could prove its ability to retain value through crisis as its performance continues to decouple from that of mainstream financial instruments.