Bitcoin and other cryptocurrencies were under pressure on September 5. While stock and bond markets were closed for the Labor Day holiday in the US, the 24/7 nature of crypto means no respite from volatility for investors.
The price of bitcoin fell less than 1% in the past 24 hours to $19,700, after climbing above $20,300 on September 2 before falling back, in line with a fall in the stock market. Trading below the key $20,000 level, the biggest digital asset is now outside the $20,000 to $25,000 range where it has stagnated for much of the summer after a dramatic sell-off in mid-June that knocked bitcoin down from $30,000.
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“Bitcoin continues to show resilience around $20,000, but it’s really being tested as risk aversion sweeps through the markets again,” said Craig Erlam, analyst at broker Oanda. “A significant break at this point could be very damaging, with the following key level below here, which is the June low around $17,500.”
“Given the outlook for risk appetite in the near term, it doesn’t look good.”
That view is also shared by other analysts.
“Bitcoin’s daily range has been massively reduced and this gives us an indication that a massive capitulation is coming,” said Naeem Aslam, analyst at broker AveTrade. “We believe this capitulation could be any day now as bitcoin has been trading in a narrow range for a long time.”
Aslam cited two factors as evidence that traders have been fighting selling pressure to keep crypto prices higher.
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The first is that bitcoin has largely been able to avoid the selloff that has hit the stock market in recent weeks, with the Dow Jones Industrial Average and the S&P 500 both down nearly 3% over the past five sessions. Cryptocurrencies should in theory be traded as uncorrelated assets, but have been shown to be linked to fluctuations in other risk-sensitive assets, especially shares. Bitcoin has avoided the outsized downside it has been vulnerable to in the past.
The second factor is a continued rout in the currency market, where most major currencies have lost drastically against the US dollar. The US dollar index, which measures the greenback against a basket of six peers, has risen 14% so far this year and was another 0.2% higher on September 5. A strengthening dollar has been a significant headwind to bitcoin prices in the past.
“These two factors indicate that bulls are holding ground very well and they have not allowed the bitcoin price to be beaten,” Aslam said. “On the flip side, if there is a capitulation to the downside, then the next move is not going to be about the $18,000 or $15,000 price level; Sales could be so intense that it could easily push prices towards the $12,000 mark.”
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Bitcoin prices have proven difficult to predict in the short term – much to the chagrin of analysts and ambitious price targets – and cryptos are notorious for their volatility. But with inflation still high and the Federal Reserve showing little sign of stopping its tightening of financial conditions – which is dampening demand for risk-sensitive assets – bitcoin is likely to remain under pressure.
Beyond bitcoin, ether, the second-largest crypto, was up less than 1% as anticipation continued to build around “The Merge,” a long-awaited and critical upgrade to the Ethereum blockchain network. But altcoins, or smaller cryptos, were weaker, as Solana lost 1% and cardano was 3% lower. Memecoins – originally intended as internet jokes – also fell, with dogecoin down 3% and shiba inu down 6%.
This article was published by Barron’s
