Bitcoin and other cryptocurrencies slid in lockstep with the stock market on Wednesday as digital assets remained sensitive to macroeconomic forces. But bullish signals still indicated that cryptos are in a positive groove.
Bitcoin’s price has fallen 2% in the last 24 hours to $29,100, falling below the psychologically important $30,000 mark – which is where prices were this past June, before the crypto sell-off accelerated into a brutal bear market . The biggest digital asset surpassed $30,000 last week, advancing to near $31,000 in spots, but has struggled to consolidate gains or move higher amid some signs of profit-taking.
“The sudden sell-off is removing some of the excess foam in the market,” said Antoni Trenchev, co-founder and managing partner at crypto lender Nexo.
In the short term, general concerns about inflation and the prospect of further rate hikes pushed prices lower, which also weighed on the Dow Jones Industrial Average and the S&P 500. A series of dramatic Federal Reserve rate hikes over the past year — an attempt to tame decades-long inflation — drastically dampened demand for risk-sensitive assets, which hit both cryptos and stocks. While Bitcoin’s rally this year has come amid expectations of looser monetary policy from the Fed, the narrative remains fragile.
“Bitcoin’s resilience in the face of selling pressure has been impressive over the past few months, so this will tell us if the bulls have anything left after pushing Bitcoin as high as $31,000 last week,” Trenchev said. “Macro and regulatory distractions remain and will not be dismissed easily… Bitcoin spent three weeks rebounding around $28,000, so don’t be surprised if you see a retracement into this range.”
Among the latest catalysts to shake investor confidence in the prospect of looser monetary policy were comments from St. Louis Federal Reserve Chairman James Bullard, who called for higher interest rates on Tuesday. Red hot inflation data from the UK on Wednesday has also sparked global headaches over continued price growth.
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“Concerns that US interest rates will rise further are permeating financial markets as investors worry that further tightening will increase the likelihood of a recession and have global repercussions,” said Susannah Streeter, an analyst at brokerage Hargreaves Lansdown.
But more broadly, there continue to be multiple bullish signs for Bitcoin, which is already up about 80% this year in a bounce from the depths of its “crypto winter,” spurring calls for a new bull market in digital assets. Bitcoin recently posted its best quarterly return since its all-time high in late 2021.
“The strong market performance in 2023 stands in stark contrast to 2022 and suggests that a favorable regime change is underway,” analysts at crypto market research firm Glassnode wrote in a recent note.
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“Multiple on-chain indicators suggest that bear market conditions (or at least the worst) may now be behind us,” the Glassnode analysts wrote, referring to blockchain network data covering individual Bitcoin trades reported by analysts have been scrutinized closely because it has been “surprisingly consistently.”
Bitcoin is in “neutral territory,” according to Glassnode, holding above the $16,000-$25,000 zone, where significant bitcoin volume has changed hands. “We are finding that much of this supply continues to be firmly held by these buyers as profits are taken and network utilization improves, all supporting the strong market performance,” the analysts wrote.
Beyond Bitcoin, Ether — the second-largest cryptocurrency, which has outperformed since the Ethereum blockchain successfully completed a major upgrade last week — fell 5% to below the $2,000 key level. Smaller cryptos or altcoins were also weak, with Cardano and Polygon each losing 6%. Memecoins were not spared as Dogecoin and Shiba Inu both lost 6%.
Write to Jack Denton at [email protected]