Bitcoin dropped below $20,000 for the first time since December 2020 as evidence of deepening stress within the crypto industry keeps piling up against a backdrop of monetary tightening.
Bitcoin fell as much as 6% to $19,377.08 at 2:54 pm Hong Kong on Saturday. The largest token by market value has fallen for 12 straight days. Ether breached the $1,000 mark briefly and dropped to $999.86, the lowest since January 2021, before paring losses.
“Surging recession fears are crippling appetite for risky assets and that has crypto traders remaining cautious about buying Bitcoin at these lows,” said Edward Moya, senior market analyst at Oanda, in a note on June 16. “The news flow has been terrible for cryptos.”
The Federal Reserve raised its main interest rate on June 15 by three-quarters of a percentage point — the biggest increase since 1994 — and central bankers signaled they will keep hiking aggressively this year in the fight to tame inflation. A higher-rate environment has been deleterious to riskier assets like crypto, contributing to a roughly 70% slide in Bitcoin from its all-time high in November.
A market that started sliding late last year on expectations of a less accommodative Fed is now showing signs of broader distress, after last month’s collapse of the Terra blockchain and the recent decision by crypto lender Celsius Network Ltd. to halt withdrawals. Adding to the mood, the crypto hedge fund Three Arrows Capital suffered large losses and said it was considering asset sales or a bailout. Even long-term holders who have avoided selling until now are coming under pressure, according to researcher Glassnode.
Even with the piercing of the level, historical data show that Bitcoin may find key support around $20,000, as previous selloffs demonstrate where the token usually finds points of resilience, according to Mike McGlone, an analyst for Bloomberg Intelligence.
Bitcoin may “build a base around $20,000 as it did at about $5,000 in 2018-19 and $300 in 2014-15,” he said in a note June 15. “Declining volatility and rising prices are earmarks of the maturing digital store-of-value.”
The crypto market now stands at a fraction of its heights in late 2021, when Bitcoin traded near $69,000 and traders poured cash into speculative investments of all stripes. The total market cap of cryptocurrencies is around $900 billion, down from $3 trillion in November, according to CoinGecko.
“Sentiment in crypto markets is that the unknown unknowns are the most significant at this point in time,” said Ainsley To, Noelle Acheson and Konrad Laesser of Genesis Trading, in a note Thursday. “The resurgence of counterparty risk is a reminder that not everything that matters in risk management can be precisely quantified. Risk is what is left over after you think you’ve thought of everything.”
© 2022 Bloomberg L.P.