Bitcoin is taking a price breather on what seemed like an inexorable march towards an imminent new all-time high.
After touching $18,800 briefly on Friday, the price has pulled back around 2.5%, to currently trade at $18,248 on US exchange Coinbase.
Altcoins that that were also belatedly playing catch-up with bitcoin have also come off the boil, with the exception of Ripple Labs’ XRP token, which is trading at $0.43 one of the least affect, although it has traded as high as $0.50 in the past 24 hours.
Ethereum, the second-most-valuable crypto asset, has also shaved off some of its recent gains after breaking through the psychologically important $500 level for the first time in 18 months.
The slowdown in the price run-up is probably a good thing, with traders taking profits before the next push north.
With more institutional players participating in the market, with the likes of Fidelity, Square and PayPal now buyers of bitcoin to provide liquidity for their new services or, in the case of Square as an asset to hold on its balance sheet in treasury, it could have the effect of bearing down on volatility and curbing the prospect of bitcoin going parabolic in unsustainable fashion.
Bitcoin price breather after flows into altcoins
The shift in the past couple of days towards altcoins has also taken some of the steam out of the gigantic bitcoin rally.
This has often happened in the past because of the greater beta potential of alts, especially recently as they failed to close in on their all-time highs in the way that bitcoin has.
But the real test for the crypto markets will be next week as the pandemic’s economic repercussions begin to bite again in the US and Europe.
In the US daily infection rates are approaching a staggering quarter of a million and a number of states have introduced tougher measures to stop the spread of infection. New York City is shutting its schools, for example, and California has introduced a curfew.
That might contribute to a turn in sentiment to risk-off in the equity markets on Monday, which could in turn drag bitcoin lower.
On the other hand, if the rally shows it has the strength and stamina to continue its decoupling from stock markets, then it will be further encouragement to the view that bitcoin is a great insurance policy against both the Covid second wave and a return of inflation, which an increasing number of analysts fear may be the result of the huge fiscal expenditures unleashed by governments around the world.
Risk-on mood souring in US?
Also, in the US the argument between the US Treasury and the US Federal Reserve over the sums allocated to backstopping the market, that Mnuchin wants returned, has soured the mood on Wall Street. So too has President Trump’s refusal to concede the election to Joe Biden of the Democrats.
US stock markets are currently trading at or near their all-time highs.
All eyes will be on the Asian market open for early indications of which direction both the stock and crypto markets may move in.
Lastly, there could be movement over the question of a new stimulus package in the US, that is currently bogged down in stalemate in Congress, with Republicans in the Senate and Democrats, who control the House, still at loggerheads over the size of the package. Millions of Americans are set to a sizeable chunk of their income in December, which could have an immediate impact on demand in the economy and consumer confidence.
To avoid the absence of a new stimulus package and the advent of a deepening wave of Covid infections, hospitalisations and deaths, adversely impacting the prospects for economic recovery, the Fed may indicate this week that it intends to step up its asset-buying programme. That would likely light a fire under stocks, and probably help to power bitcoin over the all-time high line at $20,000.
Gary is the cryptocurrency analyst at interactive investor. He writes for Coin Intelligence News in a personal capacity and none of his comments should be considered investment advice. firstname.lastname@example.org