Bitcoin – The coin of the day as it takes away $20,000 and $19,000 levels
The biggest crypto news this week is expected to be Bitcoin’s final slide which took it back below the psychologically important $20,000 level for the first time since December 2020. Prior to Saturday, BTC/USD had tentatively rebuffed a surge in below the key support level, even after the largest rate hike by the US Federal Reserve in 28 years of 75 basis points on Wednesday.
However, Saturday’s sudden bearish breakout that saw Bitcoin drop from around $20,300 to $19,000 in minutes, an unusually large move in such a short time frame for Bitcoin, makes the cryptocurrency fit the headline. of Piece of the day. . Amid thin liquidity conditions over the weekend, BTC/USD also quickly extended its level below the $19,000 level.
The cryptocurrency has since recovered above the $19,000 level and aAt current levels near $19,100, Bitcoin is trading with daily losses of just over 6.0%, taking its weekly losses to almost 30%. The world’s largest cryptocurrency by market capitalization is now trading more than 70% below its highs set last November just above $69,000.
The Fed’s hawkish turn this week continues to weigh heavily on crypto market sentiment. The central bank has not only opted for faster rate hikes, but is also signaling higher interest rates by the end of this year and throughout 2023, as it seeks to combat pressures US inflationary inflation that continues to strengthen (according to US CPI data from last Friday).
Cryptocurrencies, including Bitcoin, are considered highly speculative investments. These types of investments tend to perform poorly when central banks (the most important being the Fed) decide to tighten financial conditions, which dampens risk taking. Tighter financial conditions are also pushing government bond yields higher, increasing the “opportunity cost” of not being invested in this safe asset class, and increasing downside risks to economic growth, given lower borrowing across the economy.
What future for Bitcoin?
Bitcoin can only begin a lasting rebound if economic conditions in the United States and around the world improve and the Fed can step away from its current aggressiveness. This means a sustained easing of US inflationary pressures that would allow the Fed to ease off on monetary pauses.
The fact that global commodity (energy) prices remain high for mainly geopolitical reasons (Russia’s invasion of Ukraine, OPEC+ supply cuts) and look set to remain so for some time makes it more difficult this essential fall in inflation. But most suspect that with many major economies like the UK, Eurozone and US seemingly in/heading for recession, consumer weakness could dampen global prices by the end of this year/in 2023.
But that means we may have to wait for a more certain picture of inflation one day. As long as this uncertainty persists, traders will continue to assess the tail risk that the Fed will need to pivot in an increasingly hawkish direction. In other words, if an inflationary spiral begins, it may take rates in the 5-6% region to crash, well above the peak interest rates the Fed is currently signaling. less than 4.0%.
Amid all this uncertainty that doesn’t look likely to subside anytime soon, Bitcoin’s short-term outlook remains bleak. The $20,000 level will now be seen as short-term resistance. Should BTC/USD break through, the May low at $25,400 would be the next key area of resistance. In the current macro backdrop, a drop to test the 2019 lows in the $13,800 area seems more likely than a return towards $30,000.