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Bitcoin Is Rebounding—But Here’s Why the Crypto Picture Is Growing More Bearish

Crypto prices sold off on Monday, with Bitcoin plunging below the key $20,000 level.


Dusan Zidar/Dreamstime

Bitcoin
and other cryptocurrencies were rebounding from a dramatic selloff on Monday, but analysts said the picture for digital assets is growing gloomier, and more volatility is expected in the lead-up to a key decision from the Federal Reserve on Wednesday.

The price of Bitcoin has advanced 4% over the past 24 hours to $19,250. The largest crypto plunged below $18,500 in the depths of Monday’s rout, nearing its yearly low and putting the token firmly outside of the $20,000 to $25,000 range in which it has largely traded within since mid-June. While Bitcoin was rising on Tuesday, it remained below the key $20,000 price point.

“Another turbulent session for Bitcoin at the start of the week in which it came close to its June low before recovering alongside other risk assets,” said Craig Erlam, an analyst at broker Oanda. “While that may come as a relief in the short term, it may also generate some nerves as a break of that low could see it spiral lower once more.”

Looming large is a monetary policy decision from the Federal Reserve on Wednesday. The central bank is widely expected to raise interest rates by a super-sized 75 basis points, or three-quarters of a percentage point, for the third time since June. These have been the biggest rate hikes since 1994. 

Facing the highest inflation in four decades, the Fed has made an aggressive shift to tighten financial conditions in 2022, dampening demand for riskier bets like Bitcoin as well as stocks and raising the risk of recession. While Bitcoin should in theory trade independently of mainstream finance, these macro pressures have exacerbated a selloff this year that has hit both cryptos as well as stock indexes including the
Dow Jones Industrial Average
and
S&P 500.

“It’s not a great environment for risk assets and central banks could deliver another blow this week,” said Oanda’s Erlam. Markets have not completely priced out the possibility of a mammoth 100-basis point rate hike, and the risk of a bigger-than-expected hike or more hawkish shift from the Fed is weighing on cryptos as well as stocks.

The picture is also getting grimmer from a technical perspective, too.

“Short-term momentum has shifted negative … increasing risk as long-term support around $18,300 to $19,500 is tested,” said Katie Stockton, managing partner at technical research firm Fairlead Strategies. “Two consecutive weekly closes below around $18,300 would mark a breakdown in a bearish development, increasing downside risk to secondary support near $13,900.”

“Negative long-term momentum is growing,” Stockton added. “As it stands, it could take months for a meaningful shift.”

Beyond Bitcoin,
Ether
—the second-largest digital token—gained 4% to $1,350. Smaller cryptos or altcoins were much the same, with
Solana
up 3% and
Cardano
2% higher. Memecoins were higher, with
Dogecoin
rising 3% and
Shiba Inu
pushing 2% into the green.

Write to Jack Denton at jack.denton@dowjones.com


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