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08/30 update below. This post was originally published on August 29
Bitcoin has fallen sharply, dropping 12% from its August peak to its lowest level since early July amid a stark warning the bitcoin price could crash much further.
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The bitcoin price plummeted towards $109,000 per bitcoin after hitting an all-time high of over $124,000 per bitcoin just this month (leading to Harvard economist Kenneth Rogoff admitting he got bitcoin wrong ten years ago) and hitting ethereum, XRP and other major cryptocurrencies to the tune of almost $200 billion.
Now, as traders say they’re seeing surprising signs the bitcoin price rally could be over, fears of a wider bitcoin price and crypto crash are growing.
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08/30 update: The bitcoin price has found a floor after plunging toward $107,000 per bitcoin, with the price of ethereum, XRP and the wider crypto market rebounding slightly back toward $4 trillion.
The bitcoin price and crypto market has swung wildly in recent weeks as traders try to position for the Federal Reserve to resume interest rate cuts next month — with lower rates supportive of risk assets such as bitcoin, ethereum, XRP and other cryptocurrencies.
Bitcoin price bulls are predicting bitcoin could rocket past its all-time high of $124,000 per bitcoin if the Fed cuts in September.
“For crypto, the macro setup is increasingly constructive,” Matt Mena, crypto research strategist at 21Shares, said in emailed comments. “If [next week’s] non-farm payrolls confirm labor market cooling, the Fed will have the green light to ease. Looser financial conditions would be a significant tailwind for bitcoin, keeping $150,000 and even $200,000 in play this cycle.”
The early September jobs report will be followed by the consumer price index (CPI), likely to be the final data point used by Fed officials during its September 17 meeting, with the market currently pricing the likelihood of a 25 basis point cut at almost 90%, according to the CME’s FedWatch tool.
“All eyes are now on the next two weeks, with jobs data due next week and CPI the following week, the final datapoints for Powell to weigh as he decides whether to cut in September,” Mena added. “The timing of that decision is what markets are squarely focused on.”
“Most price action reflects traditional risk-asset behavior tied to monetary policy, where investors are rallying around anticipated liquidity,” Thomas Chen, the chief executive of institutional bitcoin software developer Function, said in emailed comments.
“Any deviation from the Fed script in September will cause a violent repricing. A delayed or ‘no-cut’ scenario from the Fed could trigger a large correction across major crypto assets and altcoins.”
The Federal Reserve is widely expected to cut interest rates in September, though officials continue to say they’re waiting on jobs and inflation data before making a decision.
“This isn’t a crypto problem but a leverage problem: expectations that the Fed will cut rates [raises the possibility that] liquidity will flood the market [which causes] crypto [to] go up,” Chen said.
However, Chen warned that traders shouldn’t be surprised if a “cascade of forced selling occurs” due to it being built on a “house of cards of a single narrative of a soft landing,” adding “the correction would likely separate speculative crypto positions from genuine institutional bitcoin and ethereum deployments.”
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Today, the Federal Reserve’s preferred method of measuring inflation in the U.S. economy will be released in the form of the core PCE [personal consumption expenditures] price index, with the consensus forecast for inflation to stay level at 0.3% month-on-month for July.
“Inflation data will take centre stage later today,” Russ Mould, investment director at AJ Bell, said in emailed comments.
“Fed chair Jerome Powell has already indicated that the central bank has had a slight shift in thinking, with the market now expecting an 85% chance of a 25-basis point interest rate cut at September’s meeting. Today’s inflation figure will play a crucial role, alongside jobs data, in determining whether the Fed cuts at this meeting, and if so, by how much.”
