Prices have stabilized, but cryptocurrencies were still on the downside after digital assets were dragged down with stocks on Tuesday.
The price of Bitcoin has fallen 0.6% over the past 24 hours, but has stabilized to Wednesday trade around $20,138 – just above the key $20,000 level.
The biggest cryptocurrency had traded as high as $22,400 on Tuesday before a selloff swept the markets, snapping a four-day winning streak for Bitcoin and delivering its most dramatic one-day drop in three months. Analysts have suggested that if Bitcoin falls further, it may stop sliding around the $18,300 to $19,500 range.
To blame was warmer than expected inflation data. The US consumer price index for August showed that headline inflation has not fallen as much as expected, while core inflation continues to rise, putting pressure on the Federal Reserve to continue tightening financial conditions. A wave of rate hikes by the Fed this year has already shaken stocks and crypto, dampened demand for risk-sensitive assets and raised the risk of a recession.
“Bitcoin is bumping close to the psychologically important $20,000 mark after dropping like a rock,” said Susannah Streeter, analyst at broker Hargreaves Lansdown. “Crypto assets remain highly intertwined with the fortunes of stock markets, and given that they are seen as highly risky assets, there has been a flight from the Crypto Wild West as investors seek less turbulent places to put their money.”
Yuya Hasegawa, an analyst at crypto exchange Bitbank, added that “whether Bitcoin could continue to defend the closing price above $20,000 will be an important factor to watch.”
But Bitcoin’s fall wasn’t as bad as it could have been. While tokens should in theory be traded independently of mainstream finance, they have been shown to be highly correlated to stocks and other risk-sensitive assets. In fact, Bitcoin fell by double digits, but crypto is known for its volatility, and this was the worst day since just June 18.
Dow Jones Industrial Average,
All indices recorded their worst trading days since mid-2020.
More details will be added to the inflation picture in the coming hours and days leading up to the Fed’s meeting on 20-21. September. The University of Michigan’s consumer survey, which contains inflation expectations, is due on Friday. It will be preceded by August’s producer price index (PPI) later today.
“If the wholesale inflation data comes in ‘cooler’ than expected, allowing yields and the dollar to give back some of yesterday’s gains, stocks should be able to try to stabilize,” said Tom Essaye, founder of Sevens Report Research. “hot” print is likely to mean further losses amid renewed dollar strength and likely rising rates.”
lost 8% to $1600. Interest in the second-largest cryptocurrency has blossomed in recent weeks in anticipation of a fundamental upgrade known as The Merge, which is set to be completed within the next day.
Altcoins, or smaller cryptos, were similarly in the red.
throw 13% and
was 6% lower. Memecoins – originally intended as internet jokes – also declined with
down around 6%.
Write to Jack Denton at [email protected]