$20K for Bitcoin still possible? Analyst sees „excess dollar liquidity“ as a factor
The Bitcoin market suffered heavy losses in mid-week as its price fell from its high of $19,500 to as low as $16,200.
Some analysts believe that the crypto currency has more room for decline given its 100 percent rally before the recent correction. Nevertheless, macroeconomic fundamentals continue to favor the bullish outlook for the young asset.
One of Bitcoin Bank main upward drivers is a weakening US dollar. The crypto currency was one of the biggest beneficiaries after the US Federal Reserve flooded global markets with excessive dollar liquidity after a flood of emergency measures to contain the economic impact of the coronavirus pandemic.
Bitcoin is well above the technical support provided by the exponential 20-day moving average. Source: BTCUSD on TradingView.com
Many strategists expected the dollar to recover after the US government reopened the economies. There have been attempts, but the US Dollar Index still fell after only this week reaching its lowest level since 2018.
Its downward bias showed the likelihood for investors to maintain their exposure to riskier assets, giving Bitcoin ample opportunity to resume its upward trend.
„Excess dollar liquidity [from the Fed] is still in the system,“ Salman Ahmed, global head of Fidelity International’s macro division, told the WSJ. And that’s bullish for Bitcoin because:
„As soon as things improve and reflation returns, that liquidity can be channelled back into riskier assets“.
20% decline of the dollar is imminent
Investors are still heavily invested in the US, which in turn keeps demand for the greenback up. However, the arrival of a potential COVID-19 vaccine, coupled with expectations of a friendlier trade policy on the part of Joe Biden’s government, is making foreign assets more attractive.
This does not mean massive capital inflows into the developed and emerging economies that are already suffering the effects of the pandemic. Interest rates remain at lower levels in most countries, leaving them exposed to their riskier markets.
As a result, for many strategists, the U.S. dollar remains an overvalued asset that is traded high above its actual interest rates due to the lack of global investment alternatives. In fact, a Citigroup report even points to a 20 percent decline in the value of the dollar as global investors hedge their exposure to U.S. markets.
Hedging – where?
The answer is Bitcoin (Buy Now? Click here for instructions) – even if this means that you get comparatively little capital inflow compared to traditional markets.
The crypto currency recently reached all-time highs against several foreign currencies. It has risen particularly in regions affected by inflationary pressures such as Turkey and Venezuela, or struggling economies such as Brazil, Argentina, Zambia, Sudan, Angola.
Bitcoin also traded close to its record high in the Russian, Colombian and Eurozone markets.
The readings showed a booming demand for the crypto-currency systems in these economies. Both investors and traders secured themselves against Bitcoin and its sister currencies in order to escape the inflation uncertainty.
Put simply, the deviation from U.S.-linked assets also increased the potential for BTC/USD to reach USD 20,000 – despite cyclical downward corrections.