Since hitting a new 2020 high, last seen 13-months back in early July 2019, Bitcoin is back to ranging, currently around $11,700 in line with declining volume.
Bitcoin’s failure to sustain above $12,000 level and the latest round of losses has the market worrying about a repeat of the March sell-off that saw the largest digital asset crashing to as low as $3,800.
I’ve never wanted my bot to be wrong as bad as I do right now https://t.co/la6lg9MbU1
— Altcoin Psycho (@AltcoinPsycho) August 20, 2020
While the market is fearful of another deep fall, that is unlikely to happen given that “exchanges don't have as many idle Bitcoins (waiting to be sold) as that day,” as noted by Ki-Young Ju, CEO of data provider CryptoQuant.
A similar observation is made by Glassnode pointing out the decline of bitcoin exchange balances, currently sitting at just 2.6 million BTC, signals reduced selling pressure.
Right now, the amount of BTC held on exchanges is significantly lower than the last time bitcoin hit a local top a year ago, at 2.8 million, and lower than before the sell-off in March at 2.9 million BTC.
With bitcoin exchange reserves hitting the year low and miners holding, “I think it won't break the bullish trend,” said Young Ju.
Moreover, there is an almost record amount of money in the Bitcoin futures market, and the total open interest in bitcoin options is sitting at $2bln, up 6x since the start of the year.
Greenback Fights Back
However, yesterday, it wasn’t only bitcoin that dropped. The US stock market and gold were also under pressure after the Federal Reserve said the yield curve control program generated little benefits, as per the minutes from the central bank’s July monetary policy meeting.
What strengthened was the US dollar, which rose after Fed minutes signaled downward revision to economic projections.
These gains in USD came after hitting fresh lows yesterday, and “the way it's looking at this very moment, yesterday's move could well turn into a false breakout, a classic example of markets running stops before spinning around,” said analyst Mati Greenspan.
In response to the dollar's strength, Greenspan reduced exposure in his crypto portfolio, fearing the losses would spill into the digital asset space as well.
A weakness in the US dollar and economic uncertainty is seen as favorable to bitcoin and “likely to benefit in the same way as gold,” notes CoinShares.
The Fed minutes also noted a consensus on the need for more fiscal help while rejecting the likelihood of using bond purchases to control bond yields and hold the current overnight borrowing rate to a range of 0%-0.25%, which speaks well for the largest digital asset.
The minutes “underscored the need for a fiscal package,” said Quincy Krosby, chief market strategist at Prudential Financial. “Chairman Powell has been adamant that we need to see another package, especially because they see the negative effects of the slowdown.”