The price of Bitcoin fell by 2% after the Fed’s announcement. Bitcoin and traditional markets reacted in the same way.
The Federal Reserve, the central US banking system, was created on December 23rd, 1913, after a series of financial panics raised the desire for central control of the monetary system to ease financial crises. The action taken by the Fed, due to the risk of a fall in the economy, could have influenced the trend in the evolution of the price of Bitcoin (BTC).
Recently, the US Federal Reserve announced cutting its interest rates, scheduled on March 18th, as an emergency measure to counteract the negative effects produced for fear of the coronavirus. However, given the economic situation resulting from the attempts to contain the outbreak of this disease, which has interrupted travel and commercial activity, the economic entity reduced the interest rate in the short term by 0.5 points, to a range between 1 and 1.25 percent.
The International Monetary Fund (IMF), the Bank of Japan, and the World Bank assured that they will act in the manner necessary to repair any economic damage caused by the current situation. Whilst it is true that an announcement of this magnitude could lead traditional markets to a bearish trend, it is also necessary to emphasize the possibility that it has been the trigger for the fall in Bitcoin’s price.
By analyzing a Bitcoin graph and an S&P 500 index graph, in periods of 5 minutes, it can be seen that the same patterns occur at the same time. On the part of Bitcoin, after maintaining a sustained bullish trend for most of February 2nd, it seemed to take a break from the beginning of February 3rd. At 11:00 a.m., the price of Bitcoin went from USD 8,692 to USD 8,860 but, from 11:10 a.m., the price began to enter a short-term bearish trend that would take it to USD 8,700. At the time of writing this article, the price of Bitcoin was USD 8,693, which means that in no more than 3 hours the price of Bitcoin fell by 2%. Subsequently, it increased slightly to USD 8,735.
On the part of the S&P 500, it can be seen that there is a pattern very similar to that shown by Bitcoin. On February 2nd, the index indicated a sustained bullish trend but, at 11 a.m. on February 3rd, it can be seen that the same “jump and pullback” that Bitcoin experienced occurs. At the time of writing of this article, the index went from 3,060 to 3,127; then in later hours, it can be seen that the index fell to the 3,000 area.
The evidence presented in the graphs only demonstrates how the global market reacted to the announcement made by the US Federal Reserve. However, this should be a clear example of how Bitcoin’s price can be influenced in the same way as traditional markets, which is why cryptocurrency trading experts place enough importance on fundamental analysis (research into important news on the environment) before planning any action.
By Willmen Blanco