Bitcoin’s price is rising after hitting a three-month low this week. It probably won’t last
Bitcoin’s price is recovering after falling below $19,000 this week for the first time since the crypto market crash in June. But some experts say it could still fall further this month.
Bitcoin climbed above $21,000 for the first time since late August on Friday morning, with ethereum rising above $1,700 for the first time since late last month.
Before Friday’s gains, Bitcoin and Ethereum prices have been on a downward spiral since a mini-rally in early August, with no end in sight to the macroeconomic factors experts say will hold them down. September also has a record of poor performance – more bad news for bitcoin and ethereum, which increasingly track the performance of the stock market.
Bitcoin and ethereum prices fell last week after Federal Reserve Chairman Jerome Powell hinted at more federal interest rate hikes ahead. It may be a sign of things to come: The next Fed meeting will take place on 20-21. September, and a new interest rate increase is expected.
Global conflicts and challenges contribute to America’s stubborn inflation, experts say. Russia’s war in Ukraine is in its seventh month, and the related European energy crisis is likely to lead to a tough winter. And then there is the strained relationship between the US and China.
“The geopolitical situation dominates the conversation. Continued war means continued inflation, says Martin Hiesboeck, head of blockchain and crypto research at Uphold. “At the same time, we have a situation we’ve never had before: near full employment, an expanding economy, and yet unprecedented price increases.”
Here’s why all of this could spell trouble for bitcoin and ethereum prices this month:
The economy affects riskier assets like crypto
When economic uncertainty is high, confidence in riskier assets such as crypto and technology stocks declines.
“Retail is starting to panic again as meme stocks and cryptos come under pressure,” according to Edward Moya, a senior market analyst at brokerage Oanda. Moya continues to see correlation between bitcoin and tech stocks, and “that could spell trouble for bitcoin.”
As US companies continue to reduce the number of employees via layoffs, the stock market continues to lag behind. The consequences for bitcoin, ethereum and the crypto market are clear, according to Moya.
“If the sentiment remains that there will be a bad September swoon on Wall Street, a retest of the summer lows seems inevitable,” says Moya.
Crypto expert and market analyst Wendy O says bitcoin needs to move above $26,700 for her to be bullish in the short term. Bitcoin has not been near that price since June.
“Are we going to make it? I don’t know yet, but one thing I notice about bitcoin is that we kissed $24,800 [on July 30] and we had a couple of attempts to sustain and reverse, but we couldn’t do it,” says O. “We might get a little retest, but then continue to go up.”
Moya and O have both said that bitcoin could still fall to $10,000 or lower before there is any reason to believe we will emerge from the current crypto winter.
Global Conflict Hurts Crypto Prices
Geopolitical tensions have had a negative effect on crypto prices in recent weeks.
Cryptocurrencies could fall back to lows seen in June, possibly even further, if geopolitical tensions continue to intensify around the world, experts say. While July was the best month since 2020 for stocks and crypto, rising tensions between China and the US, the two largest economies in the world, “will not support risk appetite anytime soon,” according to Moya.
“The macroeconomic environment continues to create fear for investors, as the European energy crisis dominates the headlines,” according to Marcus Sotiriou, a market analyst at digital asset broker GlobalBlock. “Germany’s sanctions against Russia have led to the shutdown of the NordStream pipeline, resulting in increased gas prices.”
The crypto market has been closely correlated with the stock market since the start of the year, so when stocks fall due to the current conflicts in the world, cryptocurrencies are most likely to as well. On top of that, the US economy is struggling with four decades of high inflation, rising interest rates and a potential recession. Hiesboeck says that more uncertainty about world politics and the US economy means more unpredictability in the markets, and “investors don’t like uncertainty.”
“The rally in July was just an interlude, driven by purely short-term opportunities and not long-term positioning by major players,” says Hiesboeck.
What crypto investors should do to navigate uncertainty and volatility
Volatility is the norm with crypto, which is why experts recommend keeping your crypto investments to less than 5% of your total portfolio.
Experts also say you should prioritize other aspects of your financial life before investing in crypto, such as saving for emergencies, paying off high-interest debt and building a conventional investment portfolio. You should also only invest what you would have lost, since for some investors this possibility becomes a reality.
