First Mover: Bitcoin Jumps as Fed Assets Top $6.5T and Traders Focus on Halving

Bitcoin, which after wild swings earlier in the year had stagnated over the past few weeks, finally broke out of its range on Thursday – jumping to the upside.

Kevin Kelly, co-founder of Delphi Digital, a digital-asset research firm, said the price surge was consistent with historical patterns where volatility tends to pick up whenever the bitcoin futures contract on the Chicago Mercantile Exchange is nearing expiration. The April contract is scheduled to expire Friday.

You're reading First Mover, CoinDesk's daily markets newsletter. Assembled by the CoinDesk Markets Team, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. We follow the money so you don’t have to. You can subscribe here.

The move upward may have been fueled by traders keying off market signals, according to Joe DiPasquale, CEO of cryptocurrency hedge fund BitBull Capital. Prices found a floor at the 50-day moving average around $6,800, breached a resistance level at $7,300 and now appear on track to push toward the 150-day moving average around $7,800, he wrote in an email to CoinDesk.

"As is often the case, the line acted as a resistance level on the way up, and now that we're above it the line is currently being tested as a level of support," Mati Greenspan, founder of analysis firm Quantum Economics, wrote in an email to clients.

So where does that leave bitcoin?

It's now at the highest price since March 11 – the day before the "Black Thursday" plunge, when bitcoin tumbled 39 percent amid a flight to cash across both digital and traditional financial markets, as the devastating economic toll of the coronavirus came into view.

Bitcoin is now up 5.1 percent for the year to date, a performance that looks impressive compared with the 13 percent drop in the Standard & Poor's 500 Index. The cryptocurrency still trails gold, up 14 percent on the year.

DiPasquale predicts that "after some consolidation" bitcoin prices could rise toward $9,000.

From a fundamental perspective, bitcoin is now just a few weeks from its once-every-four-years "halving," when the pace of issuance of new units of the cryptocurrency decreases by 50 percent.

German bank BayernLB predicted last year bitcoin's halving could drive its price to $90,000, roughly 12 times the current level, but some traders say that the well-telegraphed event is already baked into market expectations.

What's clear is governments and central banks around the world are pushing to pump additional fiscal and monetary stimulus into the global financial system. Cryptocurrency traders are tracking the money injections, which could eventually lead to inflation, since bitcoin is often seen as a hedge against inflation, similar to gold.

Fitch Ratings said this week in a statement that an "unparalleled global recession" is underway, with global gross domestic product set to contract by 3.9 percent this year, the biggest drop in the post-war period. U.S. Treasury Secretary Steven Mnuchin told Fox Business on Wednesday that "we need to spend what it takes to win the war" against the coronavirus.

The Federal Reserve, which is indirectly providing financing for government emergency programs, including through purchases of U.S. Treasury bonds, said late Thursday its total assets surged this week past $6.5 trillion for the first time in the central bank's 107-year history. That's an increase of more than $2 trillion in just six weeks.

Yet, an analysis Thursday by The TIE, a research firm, showed some traders might be shifting their focus toward the halving. In tweets mentioning the word "bitcoin," those that included the term "halving" surged by 63 percent on Thursday to 1,058. Bitcoin-related tweets mentioning gold slipped by 8.1 percent to 634.

Cryptocurrency analysts have latched onto the contrast between the tightening supply of bitcoin and the Fed's loose monetary policy.

"The halving is now 18 days out, ensuring the increased scarcity in a world where money supply in other currencies is drastically increasing," Greenspan wrote.

Tweet of the day

Bitcoin Watch

Trend: Bitcoin is a better bid on Friday amid signs of increased institutional adoption.

At press time, bitcoin is priced around $7,530 on major exchanges, having breached the resistance of $7,468 (April 7 high) on Thursday.

As prices broke above the key hurdle, open interest in futures listed on the Chicago Mercantile Exchange (CME) rose to $233 million, the highest since Feb. 26, according to data provided by crypto derivatives research firm Skew. Meanwhile, daily trading volume rose to $485 million to hit the highest level since March 12.

"The growth in open interest from CME may indicate that entities from traditional finance are more open to add bitcoin exposure to their portfolios, whilst retail investors are seemingly more reluctant to indulge in the futures market," said cryptocurrency platform Luno.

An increase in open interest along with an increase in price is said to confirm an upward trend. So, bitcoin’s ongoing rally may have legs.

Some observers put the rise down to a pre-halving price boost that could take prices well above $8,000. Bitcoin is set to undergo its third mining reward halving in May.

Technical charts, too, suggest scope for stronger gains in the short term. For instance, a symmetrical triangle breakout seen on the daily chart indicates a resumption of the stalled rally from the March 23 low of $3,867.

Bitcoin could soon challenge the 100-day average located at $8,024. A violation there would expose next price hurdle lined up at $8,213 (Jan. 24 high). The immediate bullish case would be invalidated if prices fall back below Thursday'slow of $7,031, although that looks unlikely, as the breakout is backed by an above-50 or bullish reading on the 14-day relative strength index.