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Why is bitcoin falling again

Indicators are red for bitcoin. The cryptocurrency queen has lost more than 9% of its value since yesterday. Explanations can be found on the Fed site.

Cryptocurrencies are not in good shape at the end of summer 2022. This morning around 9:00 a.m. French time, the queen of cryptocurrencies was down more than 7%, trading below $22,000. At the time of writing, bitcoin is still trading around $21,500. A level that the cryptocurrency has not reached… for two months.

Breaking below the $22,000 support, some observers believe the cryptocurrency will struggle to find a stable foothold in the coming months as it remains weakened by two recent cryptocurrency crashes in May and June last year.

In its decline, bitcoin dragged all cryptocurrencies: Ether has lost more than 9% of its value since yesterday, trading around $1700, not counting more exotic cryptocurrencies like dogecoin or even shiba which suffer much more significant losses, with a drop of 15% and 11% respectively.

How to explain such a decline? For several months now, the price of cryptocurrencies has reacted strongly to central bank announcements in a gloomy economic context. James Bullard, a US central bank (Fed) official, said that another Fed rate hike seemed necessary in September to combat inflation.

“We should continue to move quickly toward a level of key rates that will put significant pressure on inflation,” he told the Wall Street Journal, leaning toward 75 basis points as at the June and July meetings.

The next few weeks are likely to be decisive

It only reflects the content of the Fed’s July monetary meeting that was announced on Wednesday. On the record, the Fed is considering continue to raise its key interest rates in September. While officials said that “at some point it will be necessary to slow the pace of rate hikes,” they also pointed to “the risk that (the Fed) may tighten policy more than necessary,” and stressed that the reduction in inflation “will certainly take time”.

“The strength of the dollar, especially after the Fed minutes, appears to be putting downward pressure on cryptocurrencies, although the size and speed of today’s sell-off suggests that this could be the downside. Hunting to liquidate complacent leveraged longs,” he said. Dick Lo, CEO and Founder of TDX Strategies on CoinDesk.

The latter also believes that the cryptocurrency market will continue to fall if bitcoin fails to hold its support at $21,500.

“A break below could see $20,700 as the next level of support,” he said.

What is certain is that the next few weeks are likely to be decisive: according to analysts at ING Bank, the Fed meeting in September should indeed result in a tightening of financial conditions. The expected direct consequence: investors will, as always, seek to get rid of their riskiest assets, including cryptocurrencies.

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