Bitcoin falls as crypto markets expect Fed’s Powell to be next catalyst

Text size

Bitcoin
and other cryptocurrencies largely continued to trade in familiar territory on Wednesday as markets continued to anticipate a key speech from Federal Reserve Chairman Jerome Powell on Friday.

The price of Bitcoin has fallen less than 1% over the past 24 hours to $21,300. Bitcoin held above the recent low of $20,800 that came after a plunge on Friday. Before that, the largest token was trading above $24,000, the highest level since a dramatic selloff in mid-June brought it down from around $30,000.

“If Bitcoin holds the $20,000 level this week, it will be very constructive and could open the door to test the $25,000 region,” Edward Moya, an analyst at brokerage Oanda, wrote in a note.

Also read: Bitcoin’s Next Move: 5 Things to Watch

While digital assets should theoretically be uncorrelated to mainstream finance, they have been shown to be highly correlated with other risk-sensitive assets, such as stocks and especially technology stocks.

“Bitcoin’s correlation to US stocks remains high, and that’s not likely to change for some time,” Moya said. “Big Wall Street money was targeting a big move down for stocks, and that has weighed on Bitcoin.”

The biggest driver in the market this week is changing expectations ahead of Powell’s speech on Friday at the Jackson Hole economic conference. The Fed has moved aggressively to tighten financial conditions in 2022 with the biggest rate hikes in decades – all part of the policy to try to tame red-hot inflation.

A rally in stocks in July – accompanied by a nearly 25% rise in Bitcoin prices – came amid hopes that the Fed had reached peak hawkishness, but that narrative has since collapsed amid renewed commitments to fight inflation. Now investors are looking to Powell’s speech to provide new clarity on the central bank’s monetary policy path. The central bank governor’s announcement has the potential to drive a solid upside or downside in crypto prices, with digital assets likely to trade sideways until it arrives.

“There’s a chance that if we get a dovish Powell, the crypto winter could be over,” Moya said. “The base case for Jackson Hole still leans hawkish, as Powell will signal that the Fed may continue to tighten even as the economy weakens.”

Beyond Bitcoin,

Ether
— the second largest crypto session 1% to near $1,650. Smaller tokens, or altcoins, were slightly weaker, with both

Solana
and

Cardano
down less than 1%. Originally intended as internet jokes, memecoins were more mixed, like

Dogecoin
dipped more than 1% and

Shiba Inu
rose less than 1%.

Write to Jack Denton at [email protected]