Bitcoin (BTC) is getting dangerously close to dipping below US$20,000 for the first time in two months and the US Federal Reserve is to blame.
Not exactly, but when Fed chief Jerome Powell warned yesterday that interest rate hikes aren’t going away any time soon, it opened the doors to capitulation on the BTC/USDT pair.
"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," Powell said in his semi-annual testimony before the Senate Banking Committee.
"Now that Powell has opened the door to 50 (basis point hikes), the bar has likely changed such that the February data need to reverse some of the January strength to stay at 25 (basis point)," said analysts at JPMorgan Chase (NYSE:JPM).
If rates increase by 50 basis points this month, that might become the new norm for May and June, Reuters surmised.
Unsurprisingly the greenback surged to a two-month high on the US Dollar Index (DXY), while the pound sterling and euro dipped a chunky 200 pips and 140 pips respectively.
Bitcoin lost about 1% against the greenback by the end of the Tuesday session and another 0.9% this morning, bringing the pair essentially to a flat US$22,000.
Still a fair bit of water between now and 20k, but if momentum traders push the dip even further down, there is a chance that gap could get tighter.
At the time of writing, around US$13mln in bitcoin long futures had been liquidated in the past four hours against less than £500,000 shorts. Clearly, bears have the upper hand.
It’s not unusual to see these emotional responses to sudden changes in the macro environment.
Often they just amount to short-term volatility and the market corrects. If that’s your stance, then a good dip-buying opportunity presents itself, but it’s a risky bet.
Bitcoin is still above pre-FTX crash levels – Source: currency.com
Ethereum (ETH) bounced off the Tuesday intraday low of US$1,540 after Powell’s speech to end the session 0.25% lower.
The world’s second-largest cryptocurrency actually fared worse this morning, dipping over 0.7% on the ETH/USD pair.
We can see on the Binance order book a pretty strong support base of buyers at US$1,500.
Altcoins feel the Fed heat
Whereas bitcoin and ether kept overnight losses to a percentage point or two, most of the top-20 altcoin set took a heavier hit after the hawkish Fed chair's comments.
In fact, Cardano (ADA), Polygon (MATIC), Dogecoin (DOGE), Solana (SOL), Polkadot (DOT), Litecoin (LTC) and Shiba Inu (SHIB) have all extended week-on-week losses into the double digits.
Binance’s BNB coin is faring better, having dipped less than 6% in the past seven days, but the biggest bull-side surprise was payment coin Ripple (XRP).
XRP actually added nearly 3% on Tuesday and, despite falling back slightly this morning, is still clearly the best performer among the large caps.
Ripple investors appear optimistic that the pending outcome of the long-running SEC v Ripple Labs legal spat in the US courts will be a good one.
Ripple Labs recently suggested that a recent Supreme Court decision reinforces one of the company’s key defences.
Across the whole cryptocurrency market, market capitalisation dipped 1.8% overnight to US$1.01tn, while total value locked in the decentralised finance (DeFi) space fell 1.2% to US$47.7bn.