Bitcoin falls below $20,000 as investors bet on bigger Fed rate hikes
Bitcoin dfell below the $20,000 level Sunday night into Monday morning as investors fled risky assets after a hawkish speech by Federal Reserve Chairman Jerome Powell.
The flagship cryptocurrency fell as low as around $19,500, its lowest level since mid-July. Bitcoin has struggled in recent months, falling below the $21,000 price point, where it stayed through last week, following Powell’s speech on Friday in Jackson Hole, Wyoming.
After several hours of diving into the low-teens, bitcoin was able to regain some footing on Monday, bouncing a bit and trading around $20,300. Bitcoin peaked last year when it traded at a whopping $69,000 per coin. Rival cryptocurrency Ethereum traded above $1,500 on Monday, well below a peak of more than $4,800 hit last November.
The news comes after Powell caused waves in the market after his hawkish speech, in which he warned of economic “pain”. Markets are now pricing in another historic rate hike given the point of Powell’s closely watched annual speech.
HAWKISH POWELL SPEECH RATTLES MARKETS WITH SPECTER OF HUGE RISE INCREASE
“Reducing inflation will likely require a sustained period of below-trend growth,” Powell said. – In addition, there will very likely be a certain softening of labor market conditions. While higher interest rates, lower growth and softer labor market conditions will bring down inflation, they will also cause some pain for households and businesses.”
As inflation reaches multi-decade highs and the Fed continues to raise interest rates, investors are fleeing the cryptocurrency market in favor of less risky assets.
The cryptocurrency market has moved somewhat in line with traditional stocks, which saw a sharp selloff after Powell’s speech, as investors fear a recession caused by the Fed’s historically aggressive tightening cycle.
Stocks across the board saw losses on Friday as investors’ fears of another massive rate hike next month translated into fear and uncertainty in the market. Stocks continued their losses on Monday, with the S&P 500 down 0.72 percent, the Nasdaq down about 0.9 percent and the Dow Jones Industrial Average falling more than 200 points.
During their last meeting, Fed officials opted for a rate hike of 75 basis points – which is three times the size of normal rate hikes. It came after the central bank increased the interest rate to the same extent at the meeting in June.
Before Powell’s speech, a majority of investors and Fed watchers predicted a 50 basis point hike, but now they expect another big jump in interest rates.
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The probability of such a hike occurring was put at about 65% on Monday after the Jackson Hole speech, according to CME Group’s FedWatch tool, which calculates the probability using Fed funds futures contract prices. A month ago, the same odds were just 28%.
The Federal Open Market Committee will meet on 20-21. September, when it will decide the degree to raise interest rates and release updated economic forecasts for metrics such as inflation, gross domestic product growth and unemployment.
