Bitcoin dipped below $20,000 once again, as hawkish comments from the Federal Reserve about inflation and the economic slowdown continue to weigh on riskier assets.
The largest digital token fell as much as 2.3% on Tuesday to trade around $19,723, while other cryptocurrencies including Ether, Polkadot and Dogecoin also declined. An index of 100 of the largest digital coins fell 2% at one point. US stocks also posted losses, with the S&P 500 shedding as much as 1.5% in what’s likely to be its third straight day lower.
Riskier assets have been having a rough few days as traders digested comments from Fed Chair Jerome Powell, who reiterated that the central bank is willing to continue monetary tightening even at the risk of an economic downturn.
“This is still macro driven by Jackson Hole — Jerome Powell delivered a hawkish speech and stated that a single month’s improvement is not enough to return inflation to 2%,” Annabelle Huang, managing partner at Amber Group, said in reference to the Fed’s meeting at the end of last week. “The language signaled that the market would face further interest-rate hikes until the issue of inflation would be deemed ‘under control.’” She added that Bitcoin retraced below its 200-week moving average.
The rout in riskier assets started Friday, when Powell made it clear the Fed is willing to let the economy suffer as it fights inflation. Macro headwinds will continue to weigh on cryptocurrencies as inflation is still far from under control and the Fed is unlikely to pivot anytime soon, wrote Vetle Lunde at Arcane Research in a note. “The macro backdrop will be a difficult landscape to navigate in the coming years,” he said.
The $20,000 level acted as support for Bitcoin when it hit lows in recent months, although the cryptocurrency had worked its way higher over the last few weeks. Many analysts see it as an important psychological threshold, with a drop below it potentially signaling further losses.
“I always view crypto as the riskiest of risk assets and it coincides quite a bit with some of the more frothier areas of the equity markets,” Shawn Cruz, head trading strategist at TD Ameritrade, said in an interview. “It makes sense when you have risk tolerance and risk aversion flying all over the place that you’re going to see a little bit of volatility pick up.”