After being renewed, Bitcoin drops to $55K. COVID has shaken up traditional markets.

Following Thursday’s gains, the cryptocurrency appeared to be on track to go through $60,000, but COVID worries thwarted the move.

On Friday, the financial markets were a sea of red, as fears about a new coronavirus variety appeared to have stifled risk appetite.

Bitcoin is currently trading at $55,000, down 6.7 percent on the day, while S&P 500 futures are down 2.3 percent. The MSCI Asia-Pacific index has dropped 1.8 percent, and the commodities complex has suffered a loss of almost 2% on both sides of the Atlantic. Anti-risk assets such as the Japanese yen and US Treasuries, on the other hand, are gaining ground.

Following reports of a novel coronavirus variation found in Botswana, South Africa, and Hong Kong that may be vaccine-resistant, the standard risk-off step has been taken. If these worries are realised, many countries may be forced to reintroduce the costly lockdown restrictions.

Richard Lessells, an infectious disease physician at the University of KwaZulu-Natal in Durban, South Africa, told the multidisciplinary science publication Nature, “There’s a lot we don’t understand about this variation.” “The mutation profile is concerning, but now we must strive to determine the importance of this variant and what it means for the pandemic response.”

Bitcoin’s drop under risk aversion in traditional markets indicates that it has yet to gain traction as a safe haven asset.

Is there going to be more inflation?

If there are any lockdowns, they may exacerbate supply chain problems, driving inflation higher – a plus for bitcoin, which is often regarded as a store of value asset. Bitcoin’s October rise, according to JPMorgan, was mostly driven by an increase in inflation predictions and the cryptocurrency’s inflation hedge attractiveness.

However, the consumer price index (CPI) in the United States is already at a three-decade high. The US Federal Reserve (Fed) may prioritise inflation control over growth by withdrawing stimulus faster if the CPI rises higher. This may result in asset price deflation.

Bitcoin, which is still subject to Fed tightening, dropped dramatically on Nov. 10 after a hotter-than-anticipated US consumer price index fueled expectations of a Fed rate hike sooner than planned.

The Fed’s November meeting minutes were released on Wednesday, and they reveal that members are willing to hike interest rates sooner than predicted.

On Thursday, the cryptocurrency was higher in demand and appeared to be on the verge of breaking through the $60,070 resistance level. On the 4-hour chart, that would have verified a double bottom breakthrough. However, increased COVID fears have thrown a wrench in the works.

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