Bitcoin crashes again, temporarily plunging it below $20,200 earlier today, as spooked traders frantically sell the cryptocurrency before the US Federal Reserve does something it didn’t for 28 years – raising interest rates by three-quarters of a percentage point.
In the face of soaring inflation and financial market volatility, the central bank will raise the rate that banks charge each other for overnight borrowing within a range of 1.5% to 1.75%.
BTC and ETH fell to trade just above $20,000 and $1,000, respectively, as selling across the broader crypto markets continued. This means that the total value locked (TVL) of tokens across all blockchains has decreased by more than 8% in the past 24 hours.
Mikkel Morchexecutive director at crypto/digital asset hedge fund ARK36follows price movements closely, he says, “Bitcorner has really been caught in the crossfire in recent days. There is still a huge gap between nominal rates and real rates, so there is a lot more room for the Fed and other central banks to rise in the months ahead. Investors cannot reasonably expect risk assets to have a more sustained uptrend until the Fed pivots.
Additionally, some parts of the broader crypto ecosystem face rather harsh judgment. As the reality of the bear market begins to set in, the hidden levers and structural weaknesses of projects that only worked when prices rose are finally coming to light. In the long term, tokens with strong use cases and utility will survive – just as they have in previous bear markets. But some space companies have had unsustainable business models and now pose a risk of contagion.
Bitcoin is therefore hit with a double whammy and it is more than likely that we will soon see prices below $20,000. Some are claiming $12,000 – and while that could happen, we think that prize has a relatively low probability at this time. Today, everything is in the hands of the Fed. A 75 basis point rate hike would likely take us to $16-18k. On the other hand, a 50 basis point rate hike could lead to a substantial rebound – likely at the $24,000 resistance levels.