prices have steadied but cryptocurrencies were still heading lower after digital assets were dragged lower with stocks on Tuesday.
The price of Bitcoin has fallen 0.6% over the past 24 hours, but has steadied into Wednesday trading around $20,138—just above the key $20,000 level.
The largest cryptocurrency had traded as high as $22,400 on Tuesday before a selloff swept across markets, snapping a four-day winning streak for Bitcoin and delivering the most dramatic one-day fall in three months. Analysts have suggested that should Bitcoin fall further it could stop sliding around the $18,300 to $19,500 area.
To blame was hotter-than-expected inflation data. The U.S. consumer price index for August showed that headline inflation has not fallen as much as expected, while core continues to rise, which heaps pressure on the Federal Reserve to continue tightening financial conditions. A spate of interest-rate hikes from the Fed this year has already rocked stocks and cryptos, dampening demand for risk-sensitive assets and raising the risk of recession.
“Bitcoin is bumping along close to the psychologically important $20,000 mark after dropping like a stone,” said Susannah Streeter, an analyst at broker Hargreaves Lansdown. “Crypto assets are still highly entwined with the fortunes of the equity markets and given that they are seen as highly risky assets, there has been a flight away from the Crypto Wild West as investors search for less turbulent places to put their money.”
Yuya Hasegawa, an analyst at crypto exchange Bitbank, added that “whether Bitcoin could keep defending its closing price above $20,000 will be an important factor to look out for.”
But Bitcoin’s fall wasn’t as bad as it could have been. While tokens should, in theory, trade independently of mainstream finance, they have shown to be largely correlated to stocks and other risk-sensitive assets. Indeed, Bitcoin dropped by double-digits, but cryptos are well-known for their volatility and this was the worst day since only June 18. Meanwhile, the
indexes all recorded their worst trading days since mid-2020.
More details will get added to the inflation picture in the coming hours and days leading into the Fed’s Sept. 20-21 meeting. The University of Michigan’s consumer sentiment survey, which contains inflation expectations, is due on Friday. It will be preceded by August’s producer price index (PPI) later today.
“If the wholesale inflation data comes in ‘cooler’ than expected, leaving yields and the dollar to give back some of yesterday’s gains, stocks should be able to attempt to stabilize,” said Tom Essaye, the founder of Sevens Report Research.“ Another ‘hot’ print would likely mean further losses in the midst of renewed dollar strength and likely rising rates.”
lost 8% to $1,600. Interest in the second-largest cryptocurrency has been booming in recent weeks in anticipation of a fundamental upgrade known as The Merge, which is set to complete within the next day.
Altcoins, or smaller cryptos, were similarly in the red.
shed 13% and
was 6% lower. Memecoins—initially intended as internet jokes—also declined, with
down some 6%.
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