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The Bitcoin market took heavy losses mid-week as its price fell from its high of $ 19,500 to a low of $ 16,200.
Some analysts believe the cryptocurrency has more room for downside, given its 100% rise before the latest correction. However, macro fundamentals are still favoring the young asset’s bullish outlook.
One of the main bullish drivers of Bitcoin is the weakening of the US dollar. The cryptocurrency was among the biggest beneficiaries after the Federal Reserve flooded global markets with excessive greenback liquidity through a flurry of emergency facilities to curb the economic impact of the coronavirus pandemic.
Bitcoin maintains higher technical support than its 20-day EMA. Source: BTCUSD on TradingView.com
Many strategists had expected the dollar to recover after the US government reopened its economies. Although there have been attempts, the US dollar index is still down, having reached its lowest level since 2018 just this week. Its bearish bias has shown investors’ likelihood of retaining their exposure to riskier assets, thus giving Bitcoin ample opportunity to resume its uptrend.
“Excess dollar liquidity [from the Fed] it’s still in the system, “Salman Ahmed, Fidelity International’s global head of macros, told WSJ.” Once things improve and reflation returns, that liquidity can get back into riskier assets. “
A 20% decline in sight for the dollar
Investors continue to invest heavily in the US, which, in turn, keeps demand for the greenback higher. But the arrival of a potential COVID-19 vaccine, coupled with expectations of a friendlier trade policy from the Joe Biden administration, makes overseas businesses more attractive.
But it does not mean an influx of sincere capital into developed and emerging economies that are already suffering the consequences of the pandemic. Interest rates remain stuck at lower levels in most countries, leaving them exposed to their riskier markets.
Therefore, for many strategists, the US dollar remains an overvalued asset, trading above its real rates due to the lack of global investment alternatives. A Citigroup report even suggests a 20% drop in the value of the greenback, driven to the downside as global investors hide from US markets.
Hedge where?
Bitcoin, even when it means receiving a relatively small inflow of capital compared to what the rest of the traditional market attracts.
The cryptocurrency recently hit all-time highs against several foreign currencies. It grew mostly in inflation-hit regions like Turkey and Venezuela, while emerging stronger in other struggling economies like Brazil, Argentina, Zambia, Sudan, Angola and others.
Countries where #Bitcoin reached a new ATH in local currency:
Brazil – pop. 209 million
Turkey – pop. 82m
Argentina – pop. 44.5 m
Sudan – pop. 41m
Angola – pop. 30m
Venezuala – pop. 29m
Zambia – pop. 17mSoon:
Russia
Colombia… then all other fiat currencies
– Alistair Milne (@alistairmilne) 22 October 2020
Bitcoin has also been trading near its record high in the Russian, Colombian and Eurozone markets.
The metrics showed booming demand for cryptocurrency assets in the aforementioned economies. Investors and traders have both hedged themselves in Bitcoin and its sister currencies to escape uncertainty over inflation. In short, their deviation from US-pegged assets has also increased BTC / USD’s potential to hit $ 20,000 despite cyclical bearish corrections.
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