Bitcoin Slumps Below $23,000 As Investors Assess Impact of Federal Reserve Interest Rate Moves
Bitcoin continued to slide Friday after losing support at the $23,000 level on Sunday. At press time, the largest cryptocurrency by market capitalization was trading at $21,749 after a 1.97% drop in the past 24 hours.
Last Thursday, Bitcoin surged as high as $24,240 after the Federal Reserve raised interest rates rate by 25 basis points dialling back the size of the increase for a second straight meeting. Fed Chairman Jeremy Powell further noted that disinflation was now in play, expressing confidence in bringing inflation down to the 2% target range without causing a significant economic downturn.
Ether equally mirrored some weakness, plunging roughly 2.40% to trade at $1,531. Last week, the crypto asset soared to tap $1,715, the highest since September last year. Other cryptocurrencies like MATIC, DOGE, ADA and SHIB also experienced mild pullbacks, dropping roughly 4.06%, 3.10%, 1.85% and 2.84% in the past day, according to data from CoinMarketCap.
Last weekend’s market-wide drop can be attributed to two major factors, Bitcoin’s correlation with equities and a surge in jobs in the US. To begin with, Bitcoin continues to sing to the tune of its legacy counterparts with the top crypto asset’s correlation with the S&P 500 and other indexes.
It is also important to note that as more institutional investors throng into the crypto sector, crypto prices will likely drop alongside the U.S. stock market. On Friday, major indexes, including the Dow Jones Industrial Average, the Nasdaq Composite index and the S&P 500, closed in the red, a factor that could have triggered a subsequent selloff for Bitcoin and other cryptocurrencies.
On the other hand, despite inflation generally reducing, investors are worried that increasing employment could spoil the party for crypto. On Friday, the US Bureau Of Labor Statistics revealed a higher-than-expected non-farm payrolls figure of 517,000 jobs in January compared to the projected 185,000 jobs. Previously, the Fed has made known its 2023 resolution of cooling down the labour market. The latest employment data thus suggest that the top bank could persist with its aggressive policies as long as employment remains high, directly affecting crypto prices.
According to Mike McGlone, the Senior Macro Strategist at Bloomberg Intelligence, there might be no telling how much price pain will be before long-term gains resume for Bitcoin and other cryptos. However, in the latest market report, he noted that the ongoing macroeconomic environment could lead to a possible economic reset, leading to a crypto market recovery.
“Cryptos may be facing their first real recession, which typically means lower asset prices and higher volatility. The last significant US economic contraction, the financial crisis, led to the birth of Bitcoin, and the possible coming economic reset may mark similar milestones,” he wrote.
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