The bitcoin price is recovering somewhat after a mild print of the Federal Reserve’s key inflation rate. Still, bitcoin has reversed sharply since Tuesday, sliding nearly 5% over the past 24 hours and 11% from Tuesday’s record high. Wednesday’s Fed meeting appeared to be the trigger for bitcoin’s reversal, coming as the 10-year Treasury yield spiked and the Nasdaq 100 dived 3.6%.
The 10-year Treasury yield has pulled back a bit after hitting a nearly seven-month high on Thursday, while the S&P 500 and Nasdaq 100 erased sharp losses in early Friday stock market action after the inflation data. Bitcoin plays pared early losses on Friday, including MicroStrategy (MSTR), Coinbase (COIN), Robinhood Markets (HOOD) and MARA Holdings (MARA).
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What’s Ailing Bitcoin?
Market analysts have noted bitcoin’s reverse correlation to long-term Treasury yields and its positive correlation with high-beta growth stocks.
Bitcoin is often compared to a digital type of gold, and the price of gold tends to fall when real interest rates rise. The 10-year TIPS yield has spiked to 2.25% from 2.06% a week ago and 1.9% two weeks ago. Higher real yields raise the opportunity cost of holding gold.
Some profit-taking in bitcoin is to be expected after the cryptocurrency’s value surged around 55% following Trump’s election along with a Republican Congress.
CoinDesk reported that some long-term bitcoin holders have sold amid the recent run-up in price.
Trump Strategic Reserve To The Rescue?
Bitcoin rallied after Trump’s win partly on expectation of a much more crypto-friendly regulatory environment, but also on a belief that the President-elect will follow through on his campaign talk of establishing a strategic bitcoin reserve with government money.
Trump reiterated his intention last week, helping to fuel the latest run-up in the bitcoin price. Some bitcoin insiders also offered some details about how Trump might establish a strategic bitcoin reserve, even if Congress doesn’t go along, by utilizing the Treasury Department’s Emergency Stabilization Fund.
Trump’s — and Elon Musk’s — ability to bend Congress to his will is in focus this week, as Congress tries to avoid a government shutdown.
Fed Chair Jerome Powell, in his press conference on Wednesday, added to that pressure — making clear that Fed cannot add bitcoin to its balance sheet.
“The Federal Reserve Act says what we can own,” Powell said. Changing the rules to allow bitcoin was “the kind of thing for Congress to consider, but we are not looking for a change at the Fed” he said.
Bitcoin Price, MSTR, HOOD, COIN
The bitcoin price has rebounded to $96,662, after dipping as low as $92,263 early Friday. The cryptocurrency traded as high as $108,262 on Tuesday morning.
MicroStrategy rebounded 5%, but is still down 16% for the week, following news of its addition to the Nasdaq 100. Robinhood reversed early losses, gaining 1.3% on Friday, but is down 6.8% on the week. COIN also reversed an early loss but has lost 10.6% this week. MARA is trading flat on Friday but is also down just over 10%.
The S&P 500 and Nasdaq 100 both reversed sharp early losses and are climbing 0.3%-0.4%.
Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
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