Bitcoin has held a precarious line at $26,000, but rising dollar strength coupled with a Federal Reserve announcement on Friday could cause further downside pressure.
Bitcoin traded flat around $26,000 at 7:30 a.m. ET, according to CoinGecko. The price of the world’s largest cryptocurrency by market capitalization is up 0.4% in the past 24 hours.
Altcoins added to the declines on Monday. BNB token slipped to $209 at 7:30 a.m. ET, according to CoinGecko, down over 12% in the past week. XRP was down 17.5% in the past week to $0.51, and Cardano was down over 2.6% in the past 24 hours to $0.25.
Flight from risk assets
Investors have two major factors that may make them lose their appetite for risk assets, such as equities, bitcoin, and cryptocurrencies. The first is the attraction of U.S. 10-year Treasury yields, now at highs not seen since 2007. Secondly, there is the possibility of a hawkish statement from Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium on Friday.
One analyst told The Block that ahead of Friday’s speech, “investors might now be transitioning from these riskier assets in favor of bonds.”
“It remains to be determined whether this shift is temporary or indicative of a longer-term strategic realignment due to macroeconomic uncertainties,” said Jeff Feng, co-founder of Sei Labs.
Feng added that, given the current inflationary environment, “many anticipate a moderately hawkish tone at Jackson Hole, signaling a commitment to addressing these concerns.” However, Feng acknowledged that the Fed is wary of the potential for recession and may avoid explicitly signaling more aggressive rate hikes.
Ravi Doshi, global head of trading at Genesis, told The Block that Powell might use Friday’s announcement as a way to transmit the Fed’s desire to keep rates higher for longer. “But, ultimately the market is expecting rate cuts in 2024,” he added.
There is the potential for a massive wave of dollar strength after Jackson Hole. A strengthening U.S. dollar index (DXY) can create headwinds for risk assets. If the greenback’s attractiveness as a safe haven increases further, the risk-adjusted return associated with bitcoin becomes less palatable.
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