Fed’s Brainard Speech Offsets Bitcoin Crash Fears against Rising Yields

Bitcoin held onto its key technical support area despite a concerning sell-off on Tuesday, raising hopes that it might survive the bearish assault that brought its prices down by 21.32 percent last week.

The benchmark cryptocurrency reported early gains on Wednesday, surging by up to 2.72 percent to $49,470 after bouncing off its 20-day exponential moving average support. Its move upside accompanied little volumes, alerting bulls to wait for a confirmation before extending their upside bias.

Bitcoin Holds Firm

Tuesday was all about profit-taking. Bitcoin’s wild upside move of 9.74 percent at the start of this weekly session prompted traders to minimize their risks. Concerns that the Federal Reserve would raise its benchmark lending rates in the wake of rising Treasury yields drove investors to the safety of cash. US stocks also reacted negatively to investors’ anxiety.

Bitcoin maintains its weekly bullish setup as yields rise calm. Source: BTCUSD on TradingView.com

The 10-year US Treasury yield surged to 1.6 percent last week, its best level in a year, raising doubts among investors about higher inflation and borrowing costs. Meanwhile, the US real yields, which are adjusted per inflation expectations, also surged as investors expect President Joe Biden’s $1.9tn coronavirus stimulus package would fuel powerful US price growth.

Bitcoin does not provide steams of interest payments. Therefore, it tends to perform poorly against rising yields—the same as gold does. Nonetheless, with the yields rally showing hints of calming down, the cryptocurrency is gaining back its upside bias.

Fed’s Intervention

The rise in the Bitcoin prices on Wednesday also took cues from Lael Brainard, one of the Federal Reserve’s Washington-based governors, who offered the first major hint about the central bank’s potential intervention in the ongoing bond market sell-off.

Ms. Brainard cautioned market participants that the Fed is far from the place where it can start dialing back its expansionary policies, further noting that she would be concerned if she sees any “disorderly conditions or persistent tightening and financial conditions” that could hamper the Fed’s goals.

“The economy remains far from our goals in terms of both employment and inflation, and it will take some time to achieve substantial further progress” Ms. Brainard clarified. “We will need to be patient to achieve the outcomes set out in our guidance.”

She noted that the Fed would continue its bond-buying program amid a near-zero rates environment. And more so, any rate hikes—should they come—would be gradual to ensure minimum volatility across the bonds and stock market.

The US 10-year Treasury yield fell to 1.393 overnight Tuesday after Ms. Brainard’s comments. US stock futures rose, indicating an upbeat start when the market opens on Wednesday.

“They’ll likely respond through treasury purchases at the 10, 20, or 30-year bond since those rates can hurt corporations the most,” said Ben Lilly, the author of the crypto-focused ChainPulse newsletter. “And in the mid to long-term, this is great for bitcoin… At the expense of some short-term pain.”