Stimulus Checks Arrive: Is Bitcoin Set to Hit Another Record High?

US retail traders are gearing up to put billions of dollars into the bitcoin market when stimulus payments begin entering bank accounts later this week, adding more speed to a trading frenzy that swept the cryptocurrency industry last year.

Small investors are likely to buy almost $40 billion worth of bitcoin and rival cryptocurrencies when the payments, part of US President Joe Biden’s $1.9 trillion spending package, gets transferred in coming days, according to a survey conducted by Mizuho Financial Group, a Japan-based banking firm.

The Mizuho analysts, led by Dan Dolev, surveyed 235 people with a maximum income of $150,000 or less, with 40 percent responding that they would utilize a portion of their stimulus money to invest in bitcoin or stocks. Mizuho noted that that would roughly bring about $40 billion into the cryptocurrency market, out of the total $380 billion in stimulus checks.

The survey also concluded that most retail investors would rather put money in bitcoin than in stocks. The cryptocurrency attracted 61 percent yay votes versus 39 percent for equities, raising its likelihood to swell its market capitalization by an additional 2-3 percent.

More Funds Incoming

The coming deluge in the Bitcoin market underscores the large role retail investors — stuck at home due to coronavirus lockdowns with spare time and cash — can play, armed with free trading platforms.

Their presence has ensured that even the most bearish stock like GameStop rallies by hundreds of percent in a single day. Similarly, an almost useless token like Dogecoin gets to beat some of the most bullish cryptocurrencies by logging higher sessional profits. The flow of money from the previous government has given these traders the tools to play the markets.

Meanwhile, Robinhood, the free trading app in the US—which offers stock and bitcoin trading services, has already sent a newsletter to its customers, stating that the stimulus has arrived. The previous $900bn stimulus package followed up with a 7 percent increase in funds by Robinhood clients. With Mr. Biden’s 1.9 trillion dollar aid, the deposits on the platform expect to rally higher.

“We thought that last year was an over-the-top year, with the big increase in the market being driven by retail,” Richard Repetto, an analyst at Piper Sandler, told FT. “This year is not just a continuation of that momentum; it’s a step up.”

Bitcoin Holds Support

The Bitcoin market continues to hold onto its crucial technical support areas, having corrected sharply from its recently-established record high of $61,788 (data from Coinbase).

Bitcoin wobbles ahead of the Fed meeting conclusion. Source: BTCUSD on TradingView.com

As of Wednesday, the benchmark cryptocurrency maintained a price floor above $55,000 as traders kept a close eye on the Federal Reserve to see whether they address the recent rise in long-dated Treasury yields. Rate-setters at the central bank started a two-day policy meeting, and its chairman Jay Powell will speak on Wednesday about their future decisions.

Rising yields have helped to take the US dollar out of its yearlong bearish slumber.

In turn, that has diminished the appeal of safe-haven assets like bitcoin in the short-term. Loose monetary policy, progress in COVID-19 vaccinations, and Mr. Biden’s stimulus have helped lift the cryptocurrency higher in recent months. But any signs of the Fed getting worried about rising inflation could dent the Bitcoin rally and move investors toward the US dollar.

Conversely, any indications show the Fed’s willingness to address the rising yields could have the central bank reallocate its $120bn monthly asset purchase program to long-dated Treasuries. Or, it could expand its bond-buying program altogether, thus leading the yields lower.

In turn, that would help Bitcoin continue its uptrend—towards a new all-time high.