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Crypto prices have risen from the bottom hit in a dramatic sell-off in mid-June.
Dusan Zidar/Dreamstime
Bitcoin
and other cryptocurrencies fell on Tuesday amid a wider sell-off in risk-sensitive assets, with the picture for cryptos indicating that further declines may be on the way.
But investor inflows into digital asset funds have recently increased, signaling what could be a decisive turn in investor sentiment.
The price of Bitcoin has fallen 4% in the past 24 hours to $21,000. The largest crypto has failed to consolidate gains from a recent rally that led to a peak of $24,000 last week, but remains above the bottom from a dramatic sales in June that took it below $18,000.
“Bitcoin briefly rallied above its 50-day moving average last week before pulling back in reaction to short-term overbought conditions,” Katie Stockton, managing partner at technical research firm Fairlead Strategies, wrote in a note. “The primary trend in Bitcoin is lower, marking the bearish 200-day moving average, and negative long-term momentum continues to grow.”
Stockton noted that technical analysis indicated that Bitcoin looked overbought in the short term and was in danger of testing key support levels, but that it would likely continue to find long-term support in the $18,300 to $19,500 price range. “If this level is removed, our attention will turn to secondary support [around] $13,900,” the analyst said.
Beyond Bitcoin,
Ether
– the second largest token – fell 8% to $1,400. Altcoins, or smaller cryptos, were similarly weak, with
Solana
down 8% and
Cardano
5% lower. Memecoins – originally intended as internet jokes – were not spared, as
Dogecoin
and
Shiba Inu
lost 4% and 7% respectively.
Cryptos were probably dragged around by their association with stocks, and tech stocks in particular. While Bitcoin and its peers should theoretically trade independently of mainstream markets, they have been shown to be highly correlated to other risk-sensitive assets such as stocks, after
S&P 500
and
Nasdaq
into a bear market this year.
It’s likely to be a turbulent week for digital assets. Inflation is top-of-mind for investors, and in particular how the Federal Reserve’s plans to combat it with tighter monetary policy risk spurring an economic downturn.
The Fed begins a two-day policy meeting on Tuesday that is expected to culminate with another 75 basis point rate hike on Wednesday. In June, the central bank raised interest rates by 75 basis points, or three-quarters of a percentage point, for the first time since 1994. The fear is that continuing to raise borrowing costs aggressively could start a recession, an environment that would be very unfriendly to risky bets like Bitcoin.
Stocks were down on Tuesday as recession fears returned to the fore. Corporate earnings were also in focus, with results in the day ahead and the days ahead likely to add further volatility to Bitcoin. Given digital assets’ correlation with tech stocks, earnings reports from tech giants
Alphabet
(ticker: GOOGL) and
Microsoft
(MSFT) is likely to have an impact, which will follow
Meta
(META) the Wednesday before
apple
(AAPL) and
Amazon
(AMZN) Thursday.
But stocks are hardly the only thing weighing on crypto. A selloff this year, which has knocked two-thirds of the nearly $3 trillion market capitalization of digital assets since November 2021, has shown that cracks in crypto can be just as damaging. Bitcoin’s worst quarter in more than 10 years was preceded by the meltdown of stablecoin Terra and the failure of once-high-flying hedge fund Three Arrows Capital.
Large cryptocurrency exchange
Coinbase Global
(COIN) is facing a Securities and Exchange Commission investigation into whether tokens it listed were unregistered securities, Bloomberg reported Tuesday. The question of whether tokens should be classified as currencies, commodities or securities has loomed over the industry amid increasing regulation. Barron’s reported on Monday that Coinbase and the SEC appeared to be at loggerheads over the matter.
Nevertheless, data from the digital asset manager
Coin shares
(CS.Sweden) revealed some reason for optimism. Revised fund flow data from two weeks ago reveals inflows of $343 million into digital asset investment products, according to CoinShares, representing the largest single week of inflows since November 2021, when Bitcoin was at an all-time high. Revised data from the same period showed $206 million in inflows into Bitcoin funds, the highest since May 2022, when Bitcoin traded around $40,000.
Write to Jack Denton at [email protected]
