Bitcoin price has just dropped back below USD 20,000. What’s up?

The Bitcoin (CRYPTO: BTC) price dropped back below the psychologically important $20,000 level over the weekend. And it is yet to recover.

At the time of writing, the world’s original crypto is trading at US$19,452 (AU$30,640).

That’s after BTC traded as high as $20,408 early last Friday.

So, what is putting the Bitcoin price under pressure?

Why is the Bitcoin price back below USD 20,000 today?

Bitcoin does not appear to be shaking its close correlation with risky assets, such as high-growth technology stocks.

Crypto prices came largely under pressure on Friday after the release of an unexpectedly strong September jobs report from the US, which sent the NASDAQ to close 3.8% lower. The world’s top economy saw unemployment fall to a 50-year low of 3.5%. And a 5% year-on-year increase in wages showed that inflation is unlikely to disappear anytime soon.

In case good news is bad news for the Bitcoin price, the strong economic numbers mean that crypto investors can expect further aggressive tightening from the US Federal Reserve in its attempt to put the inflationary genie back in the bottle.

In fact, as Fed Governor Christopher Waller said, “Until we see some signs of inflation starting to slow down, I don’t know how we’re going to stop.”

With interest rates rising rapidly in 2022, the Bitcoin price has crashed 59% so far this year.

What do the experts say?

B Riley Chief Market Strategist Art Hogan pointed to the sharp fall in the money supply (M2) in the US as pressing crypto.

According to Hogan (as quoted by Bloomberg):

The logic would be that when the money supply, or M2, falls, there is less money floating around that can find its way into risky assets. And clearly, cryptocurrencies have proven to be risky assets over the past 12-18 months. You would suspect that would be a negative for some of the riskier edges of the investment universe.

Portfolio strategist at New York Life Investments Lauren Goodwin added that, like gold, the price of Bitcoin and other cryptos is not living up to the hype as an inflation hedge.

“The reality is not so much that crypto is an inflation hedge, but rather, much like gold has become, it evolves with central bank liquidity,” she said. “So the reversal of excess liquidity in the economy from the Fed and other central banks has contributed meaningfully, in my perspective, to the lower appetite for digital currencies.”

So when can crypto investors expect a sustained decline in Bitcoin price?

Keep an eye on the US inflation numbers.