Bitcoin Stays Below $50K as Traders Await Fed's Take on Bond Yields

Bitcoin's recovery appears to have stalled as caution sets in ahead of expected comments from Federal Reserve Chairman Jerome Powell later on Thursday.

The cryptocurrency is currently nursing losses below $50,000, having bounced from $43,000 to $52,500 in the past four trading days, according to CoinDesk 20 data.

A Q&A between Powell and the Wall Street Journal today will be closely watched by investors as it may influence risk sentiment in the financial markets and set the tone for the next big move in bitcoin. Specifically, what Powell says about bond yields will be of interest, trader and analyst Alex Kruger told CoinDesk.

According to ING analysts, "Comments that [Powell] is monitoring events in the Treasury market might be enough to calm things down, encourage a return to a softer dollar."

That could bode well for bitcoin and stocks. Both assets have mostly moved in the opposite direction to the dollar index over the past 12 months, as seen below.

However, the rally in yields may accelerate, leading to a stronger dollar and weaker bitcoin, if Powell downplays concerns over rising bond yields, taking cues from his European Central Bank counterparts.

"No such concern [from Powell] would suggest the Fed is happy for Treasury yields to ‘find the right level’ – as our bond strategy colleagues say – potentially triggering another spike in yields and more dollar short-covering," ING analysts noted.

At press time, bitcoin is changing hands near $49,010 – down 5% over 24 hours. The 10-year U.S. yield is seen at 1.46%, and the dollar index is hovering above 91, representing a 0.2% gain on the day.

The 10-year yield surged to 12-month highs above 1.6% last week, as traders priced in prospects of an early unwinding of stimulus by the Fed. As such, both stocks and bitcoin faced selling pressure, with the latter falling 20%, the biggest single-week decline in nearly 12 months. Both asset types have benefitted from the Fed's massive stimulus delivered since the March 2020 crash.

According to Citi analysts, markets are now pricing in an 80% chance of a 25-basis-point Fed rate hike to 0.25% by December 2022. Until a few weeks ago, the first interest rate hike was expected to happen in 2024.

Dollar rallies

The Dollar Index has already broken out of a falling wedge pattern on the weekly chart, indicating the end of a year-long bearish trend and a reversal higher.

A rising dollar is one of the bigger headwinds for bitcoin's bullish trend, Kruger said.

Also read: How to Buy Bitcoin at an 80% Premium From Michael Saylor

If the bullish pattern on the DXY is a guide, the market looks to be pricing in low odds of Powell talking down yields and triggering another risk-on rally in stocks and bitcoin.