Following the FED, the European Central Bank (ECB) has now also lowered interest rates. ECB president Mario Draghi announced this on Thursday 13 September. Already during the press conference, the value of euros in dollars fell. But does this decision also have consequences for the bitcoin rate?
ECB lowers deposit rate, euro rate responds immediately
Today we do not start with the bitcoin rate, but with the rate of the euro against the dollar. But don’t worry, we’ll be back to bitcoin soon!
On Thursday around a quarter to two, Mario Draghi announced a reduction in deposit rates, from -0.4 percent to -0.5 percent. That is the interest that European banks pay to store money at the ECB. This interest has been negative since June 2014, but it has never been as low as it is now.
Draghi: We decided to lower the interest rate on the deposit facility by 10 basis points to -0.50%
– European Central Bank (@ecb) September 12, 2019
Furthermore, the ECB continues its quantitative easing policy. This means that the central bank buys bonds from governments and multinationals. So far, the ECB has bought up EUR 2,600 billion in bonds.
Exactly during that announcement, the euro was worth less in dollars. A decrease of more than 0.7 percent seems very little, but on the foreign exchange market that is a huge movement. You can see that on the graph below. The graph is zoomed in very far, each candle represents one minute:
And yes, with such an announcement you can of course expect a response from Donald Trump. On Twitter, he immediately expressed his dissatisfaction with Mario Draghi’s measures:
European Central Bank, acting quickly, Cuts Rates 10 Basic Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports …. And the Fed sits, and sits, and sits. They get paid to borrow money while we are paying interest!
– Donald J. Trump (@realDonaldTrump) September 12, 2019
Bitcoin exchange rate rose yesterday
Where the euro falls, bitcoin rises. And as you would expect from bitcoin, the exchange rate makes larger movements than the euro or the dollar. At the time of the announcement until the high point around midnight, the value of bitcoin in euros increased by almost 2.5 percent.
ECB decision influences the bitcoin rate
To understand the impact of the ECB decision, we have merged both graphs. In the orange you can see the rate of bitcoin against the euro. Below that, in blue, is the exchange rate of the euro against the dollar.
The press conference of Mario Draghi gave the start for the rise in the bitcoin course Thursday. What’s up with that? Because the ECB continues to buy bonds, more money enters the economy that is not placed in a savings account. After all, returns must be achieved. This money flows to other assets, including bitcoin. Of course other factors also play a role, but the direct effect is clearly shown below:
Falling wedge also gave a boost
Back to the bitcoin race again! Last Tuesday we discussed the falling wedge. That is a price formation that in many cases leads to a price increase. With a falling wedge the price makes lower tops but also lower bottoms. The trend lines at the top and bottom move towards each other.
Does the price break from the top trend line? Then the falling wedge is confirmed and we can expect a further rise. The bitcoin rate broke out of this formation on 11 September, but the ECB’s ruling gave the rate an extra boost.
In addition to the falling wedge, we see that negative divergence also played a role in the growth of bitcoin. Negative divergence means that the bitcoin rate makes lower bottoms. But an indicator makes higher soils. Below is the RSI, shown on the bottom graph. When this happens, it is usually a precursor to growth in the price.
Both the falling wedge and negative divergence contributed to last week’s rise:
Will Bakkt also ensure a positive influence on the price?
Where does the bitcoin price go? That is just waiting! If the price rises to the top of the triangle that we have been discussing for weeks, we can expect a value of 9,850 euros. The bottom of the triangle is currently around 8,500 euros.
But the price of bitcoin is not only dependent on technical analysis. Developments in the world economy and politics also influence the course. And you can also think of new developments in the crypto landscape.
Bakkt, for example, is launching on 23 September. With Bakkt you can buy bitcoin futures. You bet on a rise or fall through futures. What is new is that these contracts are not concluded with dollars, but with bitcoin. On Twitter everyone is very enthusiastic about Bakkt and about the possible influence on the race.
They are exciting times anyway. Keep an eye on this page to read everything about the bitcoin course.
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