Bitcoin lost its gains, falling after today’s interest-rate decision and Federal Reserve Chairman Jerome Powell’s press conference.
The price of Bitcoin was sitting around $20,300 in late afternoon trading, down about 1% over the past 24 hours. The largest crypto looked vulnerable to a drop below the $20,000 level and back into the $19,000 to $20,000 range where it has stagnated for much of the past two months. A rally last week had lifted it as high as nearly $21,000.
Cryptocurrencies...
Bitcoin prices remain at less than one-third of their all-time high from about a year ago.
dreamstime
Bitcoin lost its gains, falling after today’s interest-rate decision and Federal Reserve Chairman Jerome Powell’s press conference.
The price of Bitcoin was sitting around $20,300 in late afternoon trading, down about 1% over the past 24 hours. The largest crypto looked vulnerable to a drop below the $20,000 level and back into the $19,000 to $20,000 range where it has stagnated for much of the past two months. A rally last week had lifted it as high as nearly $21,000.
Cryptocurrencies exhibited the same price action seen in the stock market. The Dow Jones Industrial Average and S&P 500 fell 1.5% and 2.4% Wednesday, respectively.
Crypto traders who thought the correlation to equities was weakening have been reminded that Powell is the one pulling the strings. A tough environment of high inflation and rising interest rates has dampened demand for risky assets, and there are few reasons to believe the link between cryptos and stocks will fade soon.
The Fed’s dramatic tightening of financial conditions has been the dominant narrative for markets in 2022. Beyond the size of the rate hike—which markets had priced in—investors were razor-focused on Powell’s language, hoping the central bank chief would share details about when the Fed would start being less hawkish.
For its part, the Fed said it was considering slowing down interest-rate increases. That caused Bitcoin to initially jump up to nearly $20,800 after the central bank said it “will take into account the cumulative tightening” and “the lags with which monetary policy affects economic activity and inflation” when it next decides rates.
“Bitcoin continues to trade above the $20,000 level as the Fed has confirmed what markets were hoping for: A downshift in tightening is coming,” said Edward Moya, an analyst at broker Oanda. “The initial Fed reaction was rather strong for most risky assets, but it was not sustained as the central bank will remain dependent with the next round of inflation data.”
It all changed when Powell, in his press conference, said a more mixed message on the Fed’s plans. “We still have some ways to go,” Powell said, and “incoming data … suggests that the ultimate level of interest rates will be higher than previously expected.”
Bitcoin dropped below $20,200 at the trough of selling on that comment. About $25 million worth of bullish positions in the Bitcoin futures market were wiped out.
“The devil was not in the data, but in the language,” said Michael Safai, a partner at trading firm Dexterity Capital. “All eyes will turn towards next week’s CPI reading [of U.S. inflation]. If the data isn’t as hopeful as the Fed’s ambitions, crypto investors could pull back once more.”
Beyond Bitcoin, Ether —the second-largest crypto—shed 2% to below $1,550. Smaller cryptos or altcoins were weaker, with Solana and Cardano losing more than 3% each. Memecoins were deeper in the red, with Dogecoin and Shiba Inu both down 5%.
Write to Jack Denton at jack.denton@barrons.com