Market Wrap: Bitcoin and Stocks Rise on Dovish Fed

Bitcoin rose along with stocks on Friday after a weeklong consolidation below the $50,000 resistance level. The cryptocurrency was trading at around $48,000 at press time and is up about 2% over the past 24 hours.

On Friday, Federal Reserve Chairman Jerome Powell reiterated that the central bank could taper asset purchases later this year as inflation gains appear to be temporary. Powell’s comments contributed to a weaker dollar and higher bitcoin price as concerns about a more immediate taper, or a winding down of the Fed’s monthly bond purchases, were put at ease.

“Certain crypto analysts see tapering as an issue for bitcoin speculation as quantitative easing is thought to give investors the liquidity to invest in riskier assets,” Jonas Luethy, a trader at the U.K.-based digital asset broker GlobalBlock, wrote in an email to CoinDesk.

“This summer’s main event for stimulus expectations is over, and risky assets are rallying after Powell delivered a dovish taper,” Edward Moya, an analyst at foreign exchange broker Oanda, wrote in an email to CoinDesk.

Latest Prices

• Bitcoin (BTC): $46,386, +2.8%
• Ether (ETH) $3,064, +3.8%
• S&P 500: 4509.4, +0.9%
• Gold: $1,818.6, +1.5%
• 10-year U.S. Treasury yield closed at 1.307%, versus 1.349% Thursday

Bitcoin price pattern

There has been a clear pattern of bitcoin buying toward the end of the week and profit-taking toward the middle of the week, according to research by FundStrat, a global advisory firm.

Bitcoin is recovering from a pullback this week, and appears to be tracking the weekly price pattern as shown in the chart below. The BTC price returned to above $48,000 at press time.

“While we are uncertain what the drivers behind this pattern are, we will look to see if we can once again complete our weekly smile,” FundStrat wrote in a Wednesday newsletter, referring to the concave shape of the price pattern.

Crypto vs. stocks

Bitcoin and ether are lagging popular tech stocks such as Alphabet (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) on a risk-adjusted basis over the past 90 days.

The chart below compares the Sharpe ratio of BTC and ETH with select stocks, according to data from IntoTheBlock. By this metric, investors have not been compensated by the sharp price swings in crypto relative to traditional stocks over the short term. On a one-year basis, however, Sharpe ratios are higher for BTC and ETH relative to popular tech stocks.

EToro CEO Yoni Assia told CoinDesk that traders on the platform have been rotating in and out of cryptos and meme stocks, possibly in search of high returns. In terms of risk, low volatility in both crypto and traditional markets over the past month has encouraged greater speculation.

Ether holds support

Ether, the second-largest cryptocurrency by market capitalization, is holding breakout support at around $3,000 and is up about 4% over the past 24 hours. The cryptocurrency has been resolving extreme overbought levels since its Aug. 8 breakout, which typically precedes a period of consolidation.

Buyers will likely remain active at around the $3,000 support level as short-term momentum improves. ETH will need to break above immediate resistance at $3,400 in order to yield an upside target toward the all-time high of around $4,000.

Stablecoin supply growth

The stablecoin supply on exchanges has topped $19 billion, according to CryptoQuant. “There is more dry powder in the system now that could flow into bitcoin,” CryptoQuant analyst Jan Wuestenfeld wrote.

The total market cap of stablecoins has exceeded $120 billion, which is more than double the number in March, according to CoinMarketCap.

“This is likely driven by increased MN (Market Neutral) fund flows and more cash on the sidelines, looking for yield,” Rahul Rai, co-head of market neutral at crypto investment firm BlockTower, wrote on Twitter.

Embed: https://twitter.com/rahul_rai121/status/1430916151412854786

Altcoin roundup:

• Ethereum faces chain split: Ethereum is experiencing a chain split due to a number of network validators, also called nodes, failing to upgrade their software, CoinDesk’s Christine Kim and Andrew Thurman report. On Tuesday, the developer team behind the popular Ethereum software client Geth released an emergency “hotfix” to a security vulnerability in its code that would have prevented certain users from producing blocks. The Go Ethereum team had disclosed a vulnerability on Aug. 18, saying they would release a patch, but did not specify the exact nature of the vulnerability in an effort to prevent an attack. However, it would seem some users identified the exploit that was hotfixed by the Geth team and are now hacking into older versions of the Geth software.
• Cardano’s ADA token surges as fresh buyers jump in: Cardano’s cardano token surged Friday, pushing gains this month to 112%, as the price fast approaches its all-time high. ADA was trading at $2.84 at press time, up 12% over the past 24 hours, according to data from Messari. The number of wallet addresses holding the asset for fewer than 30 days has increased by 10%, compared with last month, possibly a sign that fresh buyers are coming in, according to data from crypto research firm IntoTheBlock.
• DeFi protocol Tranchess surpasses $1B in total value locked in two months: The Tranchess protocol, a chess-themed decentralized finance (DeFi) asset management platform, has been on a tear ever since it made its debut in June. Evidence of the popularity of the project, which is backed by investment firm Three Arrows Capital, can be found in its total value locked (TVL), which has risen to above $1.1 billion since the launch. TVL refers to the number of assets staked in a given protocol and is a way of determining popularity. As of press time, the TVL across DeFi protocols exceeded $150 billion, data shows.
• Blockchain Role Playing Game MIR4 Launches in 170 Countries Alongside Utility Coin: MIR4, a blockchain-based multiplayer online role-playing game that features a utility cryptocurrency, has completed testing and is now live, according to a press release. The video game, which was launched Thursday, allows players to gather utility coins known as DRACO. In turn, the coins can be exchanged for Darksteel, an essential resource used in the game, and vice versa. Utility coins or tokens are those that can be exchanged for a good or service.

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