On Friday, Bitcoin and major altcoins plummeted but did not approach their 2022 lows, after Jerome Powell restated the Fed’s commitment to tame inflation at any cost and warned against premature loosening at the Jackson Hole symposium. Surprisingly, Bitcoin exhibited some resilience and quickly clawed back above the $20,000 level, despite the widespread stock market weakness. Do these indications suggest that crypto markets have hit a tough floor?
Hawkish Fed weighs on cryptos
Despite the growing optimism in the past two months, Jerome Powell’s latest comments at the Jackson Hole symposium pushed back expectations of a slower monetary tightening pace, sending a clear message to markets that a ‘Fed pivot’ is not on the cards. Powell outlined that the Fed would keep hiking interest rates for as long as it takes to bring inflation under control, while acknowledging that this aggressive approach will most likely cause financial distress in households and businesses.
In turn, markets flooded with risk-off sentiment as investors braced themselves for rate hikes even into a recessionary period. Consequently, both the 2- and 10-year US Treasury yields spiked in multi-year highs, inflicting severe damage to risky assets. Specifically, the crypto space received a significant blow, with the global market capitalisation dipping below the $1 trillion barrier for the first time since January 2021.
Are cryptos stocks on steroids?
Even though Bitcoin fell in tandem with equity markets, it quickly bounced back above the crucial $20,000 psychological mark, whereas stocks extended their retreat. Interestingly, digital coins exhibit smaller swings than stocks in a period where negative risks in crypto markets are increasing. For instance, Powell’s hawkish remarks sent the famous Bitcoin Fear and Greed index back into the ‘extreme fear’ territory.
Moreover, seasonal trends suggest that September is historically the worst month for Bitcoin prices as they have experienced a drop of about 10% on average over the last five years. To make matters worse, cryptocurrencies have never faced an environment of rising interest rates and high inflation so far, with both themes being negative for their performance.
To sum up, Bitcoin’s mild rebound and consolidation, in a period when stocks keep losing ground, could endorse the scenario that the bottom in crypto space is close. Nevertheless, investors should keep in mind that cryptocurrencies are currently trading closer to their 2022 lows than equities are, thus the downside potential for stocks is actually higher.
Bitcoin seeks direction
Taking a technical look, Bitcoin has been rangebound in the last couple of sessions after it managed to cease its post Jackson Hole decline.
If selling pressures intensify, the price could decline to test the crucial $20,000 psychological mark. Sliding beneath that floor, the spotlight would turn to the 2022 low of $17,588.
On the flipside, bullish actions could propel the price towards the 50-day simple moving average (SMA), currently at $22,370. Even higher, any further advances could stop at the recent high of $25,200.
