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Bitcoin traded above $24,000 at points last week, but has since fallen back.
Dreamstime
Bitcoin
and other cryptocurrencies have outperformed stocks amid recent market pressure, a bullish signal that belies the fact that digital assets appear to be losing momentum and could take a sharp downward leg soon.
The price of Bitcoin rose 1% to above $21,300 on Tuesday, rising higher after a sell-off on Friday that plunged the largest crypto from above $23,000 to below $21,000. The weakness at the end of last week came in tandem with a rout in the stock market, which was repeated on Monday then
S&P 500
fell 2.1% in its worst day since June 16.
“However, the bitcoin weakness does not match the selling pressure hitting stocks, so it could be a sign that investors are not ready to see prices retest the June low,” said Edward Moya, analyst at broker Oanda. “Usually on a day like [Monday]Bitcoin’s percentage loss would easily exceed the weakness hitting the S&P 500 index.”
While cryptos should in theory be uncorrelated assets, they have been shown to be highly correlated with other risk-sensitive plays, such as stocks and especially technology stocks in
Nasdaq
index. Recent falls across both tokens and stocks have been linked to investor fears around inflation and central bank policy, particularly whether the Federal Reserve will continue on its path of aggressively raising interest rates to tame high inflation.
Fed Chairman Jerome Powell’s speech on Friday at the Jackson Hole economic conference may provide some long-awaited clarity to the market on the central bank’s path. It’s probably the most important catalyst of the week for both stocks and crypto.
As Powell’s speech approaches, digital asset investors may be keen to view the relative strength of Bitcoin and its peers over the past day as a bullish signal. But it may be premature to ignore the recent loss of momentum that has seen Bitcoin prices fall from last week’s peak above $24,000 – the highest consistent levels since a mid-June selloff pushed Bitcoin off the $30,000 cliff.
“Bitcoin is now below its 50-day moving average after a sharp decline late last week. The sell-off is associated with a loss of short-term momentum, adding to risks within the longer-term downtrend,” said Katie Stockton, managing partner at technical research firm Fairlead Strategies.
This loss of momentum puts the biggest digital asset in a vulnerable position that could see it fall below $20,000, according to the analyst.
“Short-term oversold levels should provide a few days of stabilization, after which we expect a retest of and potential breakdown below long-term support in the $18,300 to $19,500 area,” Stockton added. “Downside momentum is growing stronger from a longer-term perspective, supporting a longer-term bearish bias.”
Beyond Bitcoin,
Ether,
the second largest crypto, gained 2% to $1,600. Smaller tokens or altcoins
Cardano
and
Solana
both rose nearly 3%. Memecoins – which were blockchain projects originally based on internet jokes – moved higher as well
Dogecoin
3% in the green and
Shiba Inu
ticking up 1%.
Write to Jack Denton at [email protected]
