The Business Times

Bitcoin hovers around US$20,000 as hawkish Fed weighs on crypto

Published Mon, Aug 29, 2022 · 11:55 PM

BITCOIN is hovering at around US$20,000 as risk appetite wavers after Federal Reserve chairman Jerome Powell stressed that interest rates may have to stay elevated to stamp out inflation. 

The largest token rose as much as 0.8 per cent on Monday to US$20,142 after trading below that key round-number threshold over the weekend. Other cryptocurrenices dropped, with Avalanche seeing one of the biggest moves within the space with a near -6 per cent decline. Equities also slumped across Asia and Europe as well as in the US, with the S&P 500 shedding 0.5 per cent as of 9:51 am in New York. 

Money is flowing out of risky assets, and crypto followed the sharp adjustment of the US stock market after Powell’s remarks, said Cici Lu, chief executive officer at consulting firm Venn Link Partners. “Markets didn’t like what he had to say, and Bitcoin is resuming as a high-beta asset.” 

The US$20,000 level acted as support for Bitcoin when it hit lows in recent months, but the cryptocurrency had worked its way higher in recent weeks. Before Saturday, it hadn’t been below that mark since Jul 14, and had even crossed above US$25,000 earlier in August. That mini-rally was cut short as rate-hike concerns intensified, and Bitcoin has fallen around 20 per cent since Aug 15. 

The gyrations have come amid uncertainty about the path and magnitude of Fed rate hikes, and the effect they could have on riskier assets. 

Riskier assets have been having a rough few days as traders digested comments from Fed chair Powell, who reiterated that the central bank is willing to keep raising interest rates, even at the risk of an economic downturn.

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“Now that Powell has come out standing firm on inflation, the probability of a crypto crash has increased significantly,” wrote Peter Tchir, head of macro strategy at Academy Securities. 

Numerous strategists have flagged US$20,000 as a key point for Bitcoin, though levels of support could lie lower as well.

Fairlead Strategies’ Katie Stockton sees long-term support in the US$18,300 to US$19,500 area. Fundstrat strategist Mark Newton has flagged some key areas in the US$19,000 range, with a “real area of importance” around US$17,500, near the June lows and which would allow for a 100 per cent alternate wave projection of the most recent decline from mid-August, he said in a note Friday.

“If Bitcoin doesn’t hold US$20,000, then US$18,900 comes into play before a date with the June intraday low of US$17,600,” said Antoni Trenchev, co-founder and managing partner of Nexo, in a note Sunday. “Close below that, and it doesn’t look pretty.”

The past two Fridays have been tough in the crypto market, with US$288 million of crypto longs liquidated on the most recent one, according to data from Coinglass. On Aug 19, US$562 million of longs were liquidated, the most since Jun 13. 

Ether, the second-biggest token, slid as much as 4.1 per cent on Monday to US$1,422.67, continuing a decline from around US$2,000 a couple of weeks ago. It has been fluctuating ahead of its much-anticipated Merge upgrade, which is due in mid-September. BLOOMBERG

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