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.

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.

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, 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.

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.

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