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Bitcoin Falls Below $20K, Crypto Slumps as Fed Rate Risks Rise

Published 08/28/2022, 07:35 PM
Updated 08/28/2022, 07:42 PM
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By Ambar Warrick

Investing.com-- Bitcoin fell below the key $20,000 level on Monday, helming a tumble in crypto prices after Federal Reserve Chair Jerome Powell struck a hawkish tone on the path of U.S. monetary policy.

Prices of the Bitcoin (BitfinexUSD) fell 0.8% over the past 24 hours to $19,882. The token slumped nearly 8% over the past seven days. Ethereum, the world’s second-largest crypto, fell nearly 2% in the past 24 hours to $1,465, while total crypto market capitalization fell below $1 trillion.

Losses in crypto prices mirror those seen in most risk-driven markets, after the Fed’s Powell dismissed any notion of a dovish pivot by the central bank. Instead, the Chair warned that U.S. households and businesses will have to contend with steep rises in interest rates until inflation is brought under control.

His comments triggered sharp losses in stock markets on Friday, with the Nasdaq 100 index - crypto’s closest analog in the equity market - tumbling over 4%.

The Fed raised interest rates four times this year, quickly reversing the easy monetary policy enjoyed by crypto and risk-driven markets over the past two years. With a majority of traders now forecasting a 75 basis-point rate hike by the Fed in September, crypto’s losses are expected to persist.

Increased borrowing costs, coupled with rising inflation limit the amount of funds that can be invested into speculative assets such as crypto. Technology stocks - which had also ridden loose monetary policy to record highs - are expected to see a similar decline in investment.

Bitcoin has slumped over 60% from a record high hit in November 2021, and lost over half of its value in 2022. The Nasdaq 100 is down nearly 24% so far this year.

The U.S. dollar benefited the most from the Fed’s hawkish signals, rising 0.3% to close to a 20-year high on Monday. U.S. Treasury yields also traded at elevated levels.

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