Bitcoin fell Thursday as a host of negative fundamentals catalyzed selling sentiment across the cryptocurrency market.
# 1 overbought
The BTC / USD exchange rate was quoted early in the morning in London at 16,200 USD, a decrease of around 17 percent from the annual high noted the previous day. Data retrieved from CryptoQuant shown An increase in bitcoin inflow into the exchanges before the slump suggests that traders willingly sold their holdings for a short-term profit.
Bitcoin breaks out of its parabolic uptrend. Source: BTCUSD on TradingView.com
The downward trend became apparent when Bitcoin gained almost 100 percent after seven weeks in a row. Technically, the cryptocurrency was trading in an overbought territory that was a kind of neutralization. And that is exactly what happened during the European session on Thursday.
Data protection at risk
Even so, the pace of Bitcoin’s downward correction has been faster than usual. It almost seemed like a dumping exercise, which suggested there was more narrative at play. The first culprit, as the analysts agreed, was a series of tweets from Coinbase CEO Brian Armstrong.
The executive alleged that Steven Mnuchin would introduce stricter regulations for self-custody wallet companies. He noted that the outgoing U.S. Treasury Secretary wants crypto users to verify their identities before using a private crypto wallet.
“If this crypto rule comes out, it would be a terrible legacy and it would have long had a negative impact on the US,” added Armstrong. “In the early days of the Internet, some people called for regulation, like the telephone companies.”
We along with a number of other crypto companies and investors sent a letter to the Treasury Department last week raising these and other concerns.
– Brian Armstrong (@brian_armstrong) November 25, 2020
The Bitcoin FOMC connection
Bitcoin’s slump also followed the release of the Federal Reserve’s minutes of their November 5-6 meeting. The US Federal Reserve held the interest rate steady near zero, but cast doubts about the long-term continuation of its asset-buying program.
“Participants noted that if necessary, the committee could provide more housing by increasing the pace of shopping or by shifting its purchases from the Treasury to longer-term ones without increasing the size of its purchases,” the minutes read.
“Alternatively, the committee could provide more accommodation if necessary by making purchases at the same pace and composition over a longer period of time,” they added.
The Fed’s indefinite purchase of bonds drove their yields lower. An inferior yield climate caused investors to make profits elsewhere, which benefited bitcoin, stocks, and gold. But now the US Federal Reserve is trying to return some of its collateral funding to the Treasury Department after receiving orders from Mr Mnuchin.
This leaves them with less arsenal to support the US economy through the pandemic in early 2021. A better outlook on Fed policy will come in the December meeting. Until then, Bitcoin traders are careful.