Bitcoin Falls Below $20,000 as Federal Reserve Warns of More Pain

Bitcoin plummets and retests $20,000

Bitcoin dropped lower over the weekend after Fed Chair, Jerome Powell, explained on Friday that the central bank would use the tools necessary to continue the fight against inflation. 

Inferring that more interest rate hikes were to come, risk-on assets including stocks and crypto gave up some of the gains that had been witnessed during July.

Fears were amplified as speculation regarding the release of Mt. Gox bitcoin gripped crypto social media channels.

  • Cryptos plummet as Fed warns of forceful measures to tackle inflation
  • Ethereum dips to 1-month low
  • Mt. Gox rumours exacerbate Bitcoin market fears

Bitcoin plummets as Fed warns of forceful measures to tackle inflation

Crypto prices plunged on Friday as the Federal Reserve’s Chair, Jerome Powell, presented his annual policy speech in Jackson Hole, Wyoming. The Fed Chair remained hawkish and warned that the central bank would “use tools forcefully” to combat the relentless inflation crisis. 

Powell confirmed that he expected the central bank to continue rising interest rates heading into 2023 and as a result, he felt that it was likely to result in “some pain” for those involved with the US economy. 

So far In 2022, the Fed has raised interest rates four consecutive times, leading to a cumulative 2.25% rise in the US Federal Funds Rate. However, Powell made it clear that “this is no place to stop or pause.” 

He continued, “While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

He later explained that internal projections placed the median for the Federal Funds Rate at 4% by the end of 2023; 1.5% higher than current levels. 

As Powell revealed his hawkish sentiment, both cryptocurrencies and stocks began to ebb lower. The S&P 500 index fell 3.3% on Friday, while the price of Bitcoin fell by over $1,500. The price of all other cryptocurrencies, including Ethereum and XRP, continued to fall lower during weekend trading. At $20,000, the price of Bitcoin now continues to test a level of support that corresponds with the 2017 all-time high. 

Although a reduction in July’s Consumer Price Index figures has renewed hopes that peak inflation has now passed, at 8.5%, CPI values remain at a 40-year high. Experts now look toward the release of August’s CPI figures in two weeks’ time.

Expected future path of fed funds rate.

Ethereum dips to 1-month lows

The world’s second-largest cryptocurrency, Ethereum, posted a fresh 1-month low after dipping below $1,500. The coin had been enjoying the hype surrounding the upcoming Merge and transition to Proof-of-Stake, however, some of those gains have now been erased.

Unfortunately, after recently peaking above $2,000, the coin has now turned lower and is heading back towards the recent lows of June 2022. 

Sunday saw the price of Ethereum drop to $1,420, which is now the lowest point since July 28th. Bears within the market are now targeting the next level of support which sits at $1,400.

Last week’s price decline resulted in the 10-day moving average dipping back below the 20-day moving average, which last occurred at the start of April. The last crossover of the 10 and 20-day moving averages saw the price of Ethereum drop from $3,500 to $1,000. 

Although Ethereum is oversold, the daily Relative Strength Index has not yet reached the supported level of 30 on the indicator. To reach the oversold level of 30 the price of Ethereum would need to fall further, back towards June lows.

As a result of the correlation between inflation, the economy, stocks, and crypto, Ethereum investors continue to keep one eye on the macro landscape, and the other on the upcoming Merge which is still scheduled to take place on September 15th.  

ETH/USD daily chart.

Mt. Gox rumours exacerbate Bitcoin market fear

During the weekend, rumours began to surface on crypto Twitter regarding the release of 137,000 bitcoin. The 137,000 bitcoin are set to be reimbursed to creditors who lost BTC during the 2014 Mt. Gox hack. Investors fear this could add additional selling pressure to the market.

In 2014, Mt. Gox was one of the largest cryptocurrency exchanges in the world. Unfortunately, the exchange suffered a malicious breach which resulted in the loss of over 740,000 bitcoin. However, some of those bitcoins have now been recovered and are set to be released to creditors. 

According to a July 6th release from the Trustee, Nobuaki, repayments to creditors were set to take place at the end of August. As that date draws close, many within the cryptocurrency community began to grow concerned over when and how the release might take place.

This caused initial panic amongst market participants, many of whom believed that all 137,000 BTC would be released at once. However, crypto influencers including @dannydevan and @rager were quick to relay fears and explain that the process would take months.

Rager, the co-founder of blockroots, posted on Twitter “Mt. Gox release probably creating more fear than needed.” He was quick to point out that even with $2.8b worth of bitcoin being released, the daily volume of bitcoin sits between $20-$30b on average and, therefore, is unlikely to make a marked difference in price.

Danny Devan, a crypto investor, then released a subsequent post that stated, “Mt. Gox isn’t releasing ALL 137,000 bitcoin tomorrow. It’s starting the repayment process tomorrow so creditors will begin to receive their bitcoin. The entire process will take months!”

Tweet from crypto investor Danny Devan explaining the release of Mt. Gox bitcoin.

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