2 Crucial Bitcoin Takeaways from Powell’s Economic Club Speech

Bitcoin plunged by more than $3,000 after establishing a record high on Tuesday, stoking concerns about an extended price decline on growing profit-taking sentiment. Nevertheless, the flagship cryptocurrency discovered a substantial interim support range above $44,000.

The BTC/USD exchange rate inched back above $45,000 in the early Asian trading session Tuesday, reiterating hopes that the pair might reclaim its previous high in the coming sessions. Bulls mentioned Tesla’s latest $1.5 billion investment into the cryptocurrency as a major upside case.

Bitcoin logs intraday gains amid hopes of Twitter's investment in the space. Source: BTCUSD on TradingView.com

Meanwhile, the prospects of Twitter adding Bitcoin to their balance sheets further raised hopes of another bull run.

Meanwhile, Jerome Powell delivered another speech about the US economy’s health.

The US central bank’s chairman outlined a grim picture about the US labor market’s state, providing measures that the government and his own office need to take to fix a myriad of issues that still surround American workers.

Bitcoin and the US economy developed an uncanny correlation against the coronavirus pandemic backdrop.

As the Federal Reserve unleashed its ultra-dovish measures, which included buying $120 million worth of government and corporate debt every month and keeping interest rates near zero, investors’ appetite for riskier safe-havens such as gold and bitcoin surged exponentially. That helped BTC/USD notch more than 1,000 percent gains in just 10 months.

On Wednesday, Mr. Powell—involuntarily—provided more reasons to stay bullish on the benchmark cryptocurrency. Here are three among them.

#1 Full Economic Recovery? Long Way

Mr. Powell highlighted that the US employment last month was 10 million below its February 2020 level. That was worst than the figures that emerged during the Great Recession despite a more vital drop in the jobless claims—from its 2020 high of 14.8 percent to 6.3 percent.

The banker warned financial thinktanks about the understated unemployment rate, failing to grasp the actual economic damage. It includes the most significant 12-month drop in labor force participation since at least 1948.

He added that it wouldn’t be easy for the US to achieve maximum employment, hinting that the policymakers and the Fed would need to do more to accelerate the recovery. Mr. Powell’s statements increased the likelihood that the US government would push expansive stimulus packages in the future.

In turn, it would mean a weaker US dollar. It could send the Bitcoin price upward.

#2 No Tapering Ahead

The US central banker made one thing absolutely clear: there is no way his office would consider tapering unless the jobs market recover.

“Fully realizing the benefits of a strong labor market will take continued support from both near-term policy and longer-run investments so that all those seeking jobs have the skills and opportunities that will enable them to contribute to, and share in, the benefits of prosperity,” Mr. Powell said in a prepared statement.

Expectations of more robust recovery earlier pushed long-dated Treasuries higher. On Monday, when Bitcoin achieved its all-time high following Tesla’s investment, the 30-year bonded traded over 2 percent for the first time since February 2020.

Fed is buying short-term bonds for now, which has kept their yields just shy of zero. Markets anticipate that the central bank would shift its bond-buying program to longer-dated bonds should it deem necessary to accelerate growth. In turn, that would push the yields on 10- and 30-year bonds lower, making it unattractive for investors.

US bonds' short-term yields trade close to zero. Source: US Treasury

As a result, they could start offloading a portion of their safe-haven reserves to riskier assets, such as bitcoin, gold, and stocks. Michael Saylor, the CEO of MicroStrategy, a Nasdaq firms that hold more than 72K BTC in its balance sheet, told Yahoo Finance:

“Bitcoin is engineered to convert your balance sheet from a liability to an asset. It’s a million times better than gold; it moves at the speed of light; more than 100 million people are using it now and approaching 1 billion users in five years, with millennials leading the way.”

Bloomberg Intelligence thinks the Bitcoin price could grow to $400,000 in the coming years on its gold-like anti-inflation narrative.