Why bitcoin is falling again

The indicators are red for bitcoin. The king of cryptocurrencies has lost more than 9% of its value since yesterday. Explanations can be found on the side of the Fed.

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 fell by more than 7%, trading below $22,000. At the time of writing, bitcoin is still trading around $21,500. A level that the cryptocurrency had not reached for… two months.

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

In its fall, bitcoin has dragged down all cryptocurrencies: ether has lost more than 9% of its value since yesterday, trading around 1700 dollars, this is without counting on more exotic cryptocurrencies such as dogecoin or even the shiba who suffer much more substantial losses, with falls of 15% and 11% respectively.

How to explain such a drop? 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 another Fed rate hike seemed necessary in September, in order to deal with inflation.

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

The next few weeks are likely to be decisive

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

“Dollar strength, particularly after the Fed minutes, appears to be putting downward pressure on cryptocurrencies, although the magnitude and velocity of today’s selloff suggests it could be downside. of a liquidation hunt on complacent and leveraged long positions,” 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 maintain 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’s meeting in September should indeed result in a tightening of financial conditions. Anticipated direct consequence: investors will as always seek to get rid of their riskiest assets, including cryptocurrencies.

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