Bitcoin was flat, holding around $33,000, after falling for two straight days. The largest cryptocurrency by market capitalization is now in its eighth straight week of trading roughly sideways.
Analysts said bitcoin trading was buoyed along with assets in traditional markets by Federal Reserve Chair Jerome Powell’s assurances that he’s still not seeing “substantial further progress” on an economic recovery – signaling that the U.S. central bank isn’t likely to dial back monetary stimulus anytime soon.
Powell’s comments come after Tuesday’s U.S. Labor Department report that inflation accelerated in June by the fastest pace in 13 years. Bitcoin is seen by some investors as a hedge against inflation because of the cryptocurrency’s fixed supply schedule.
“What helped cryptocurrencies turn positive was the broad-based rally on Wall Street,” Edward Moya, senior market strategist at Oanda, wrote in an email. “The Fed seems stubbornly dovish and willing to tolerate a few more months of surging pricing pressures before considering a change of tune over the transitory/persistent inflation debate.”
Ether tracked higher with bitcoin, but among altcoins the day’s big story was a jump in price for the FOX token after the backing ShapeShift exchange announced plans to become more decentralized and airdrop the token.
Looking for clues
With bitcoin stuck in the $30,000 and $40,000 range for eight weeks now, cryptocurrency analysts are scouring blockchain data for clues on which way the market will go.
David Grider, head of digital assets at FundStrat, wrote Wednesday in a weekly report that he is looking closely at the “spent output profit ratio,” or SOPR. The metric is calculated by dividing the average price at which bitcoin was sold by the average price at which it was bought.
Writes Grider: “When SOPR is above 1, it implies owners of the asset are in profit at the time of the transaction. Below 1 implies sellers have capitulated and sold at a loss.”
The metric has stayed below 1 since May, possibly a sign there’s a “healthy reset of profit taking,” reminiscent of a similar episode that played out in March 2020, at the start of the coronavirus pandemic. Several months after that, bitcoin prices rallied and ended up quadrupling on the year.
“In a bull market, as we expect we are in today, a SOPR below 1 can indicate a local bottom as sellers are reluctant to sell at a loss,” Grider wrote.
Powell talks stablecoins
Jerome Powell spent much of his semiannual testimony before the House Financial Services Committee addressing the outlook for the U.S. economy, the prospects for inflation and the likely path of monetary policy.
He was also questions on cryptocurrencies, as reported by CoinDesk’s Nate DiCamillo.
U.S. Rep. Patrick McHenry of North Carolina, the. ranking Republican on the committee, asked when the Fed would deliver its much-anticipated report on central bank digital currencies (CBDC) and crypto.
Powell said that report, previously expected to arrive this month, will appear in September.
“U.S. regulation, along with environmental, social and governance (ESG) concerns, are the biggest risks to cryptos, so a September Fed release of [the central bank’s] concerns on digital currencies should be viewed as good news for bitcoin,” according to Oanda’s Moya.
Powell also weighed in on stablecoins, arguing they will need to be more closely regulated if they are going to be a major part of U.S. payments networks.
“Stablecoins certainly have some advantages in terms of faster payment systems and have some attributes of CBDCs, but there are some risks with stablecoins right…