After a brief resurgence this summer, bitcoin fell below $20,000 on Monday, seemingly triggered by Jerome Powell’s US Federal Reserve commitment to tighten policies in an ongoing inflation combat.
It has been a difficult year for bitcoin investors with the coin having declined substantially by nearly 70 percent from its record high of $68,990 in November. Powell said he expects the central bank to continue raising interest rates in a way that will cause “some pain” to the US economy, to bring down inflation which hit a 40-year high.
The price of the cryptocurrency fell below $20,000 on Monday, the fifth day in a row that its value fell, before recovering later in the evening and Tuesday morning to just over the $20,000 mark.
“In recent times, the price of Bitcoin has developed a strong link with the Federal Reserve’s monetary policy, such that as the Fed tightens policy, the price of Bitcoin falls,” said Naeem Aslam, Chief Market Analyst at Avatrade.
“Risky assets are struggling as Powell’s fight against inflation will remain aggressive even as it will trigger an economic slowdown,” said Edward Moya, a Senior Market Analyst at brokerage firm Oanda, reported CNBC.
So far, the Federal Reserve has made two interest rate hikes in an ongoing effort to curb inflation. During the Covid-19 pandemic, low interest rates and government stimulus contributed to elevating cryptocurrency prices, however, prices have dropped substantially in recent months.
As a direct impact of anticipated inflation effects, investors are pulling away from the cryptocurrency market, a trend that has been observed by market experts.
Cryptocurrency could be considered a ‘volatile asset’. Investors tend to make cautious moves amid a period of aggressive rate hikes by central banks, with ‘volatile assets’ usually the first to take the hit during economic turmoil. Bitcoin is not the only cryptocurrency facing the pressure, with the rates of many other coins directly linked to bitcoin’s performance. As the Federal Reserve indicate higher rates to tackle inflation, analysts fear further price drops.
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