So far, June has been the worst month for Bitcoin and for the crypto world, with the largest cryptocurrency by market cap losing over 55% to trade at $20,300 as of June 23. Bitcoin bottomed out on June 18 when it broke below $17,800 for the first time since the end of 2020.
The US Federal Reserve is partially to blame for the massive crash. The central bank turned more hawkish than expected during the last few months in an effort to put a cap on high inflation. Government data showed that the US consumer prices index (CPI) surged at an annual of 8.6% in May, even though most analysts hoped that March’s 8.5% figure was the peak. US prices are accelerating at the fastest pace in four decades, and it defies the Fed’s previous expectations of “temporary inflation” caused by the lockdowns and supply chain disruption.
This is a difficult time for the Fed, which previously slashed the interest rates to a record low and implemented unprecedented stimulus measures to support the economy during the COVID-19 pandemic. The move favored stocks as well as the crypto market, with Bitcoin breaking above its 2017 peak and establishing a new ATH at over $67,000 at the end of 2021. Nevertheless, inflation seems to get out of control, and the Fed is forced to tighten the monetary policy much sooner than initially anticipated. While this is an unavoidable move, it can result in an economic recession, and the crypto market has been already feeling the pain.
The Fed started the rate hikes in March, and it surprised the market in mid-June when it raised the rate from 1.00% to 1.75%, which is the highest hike since 1994. Following the Fed’s June meeting, Bitcoin dropped below its 2017 peak for the first time since breaking it 18 months ago. While the LUNA crash and the withdrawal freeze from Celsius had triggered the crypto crash, the Fed’s hawkish rhetoric is drying up liquidity.
Zignaly CFO and co-founder Abdul Gadit explained:
“Initially, Bitcoin (BTC) has fallen below the well-marked support of $28,500, resulting in a massive sell-off, followed by intensive selling across the crypto sphere. The global macro environment has dried up liquidity across the financial markets, and crypto is no exception. Currently, BTC is hovering above $20,000 and has the potential to bounce towards $26,000. However, the likely scenario is that prices will further fall below towards the $14,000-$17,000 range where a cyclical bottom can potentially form.”
Meanwhile, the Bitcoin dominance maintains near 43% thanks to an ongoing ascension during the last few months. Gadit added:
“BTC Dominance has been on the higher side, and therefore, selling in the altcoins has been even stronger and persistence with most of these are on a 10-week red streak. Selling exhaustion can likely happen during the next few days, however, the technical stance supports a ‘sell on bounce’ strategy till BTC is able to close weekly over $34,000.”
It remains to be seen whether Bitcoin can force a rebound, as the Fed may raise the interest rates by another 0.75% in July. The era of “easy money” might be over due to tightening fiat liquidity. However, there is still much optimism for the crypto market. Recently, Rick Rieder, CIO of global fixed income at BlackRock – the world’s largest asset manager – reportedly said:
“I still think Bitcoin and crypto are durable assets. It’s a durable business, but there was so much excess built around it in cash.”
While Bitcoin predictions vary at this point, the worst-case scenario is that the cryptocurrency will decline to a bottom at $14,000 as shared by Gadit, or even $13,000, while the bullish outlook is that it managed to break above the strong resistance at $30,000. All in all, Fed’s decision in July will have a strong impact.
