Bitcoin Bears Maintain Control as Price Breaks Rapidly Below $20,000 Then $19,000

The price of Bitcoin dipped below $20,000 for the first time since December 2020, before temporarily surpassing $19,000. With weekly losses of roughly 30 percent, the cryptocurrency is now trading in the low $19,000s again. Fed hawkishness and mounting downside risks to the US economy continue to exert a significant downward pressure on cryptocurrencies.

Bitcoin's current decline, which has pushed it back below the psychologically significant $20,000 barrier for the first time since December 2020, is expected to dominate crypto headlines this week. Prior to Saturday, BTC/USD had been tentatively resisting a push below the critical support level, despite the US Federal Reserve's 75-bps rate rise on Wednesday, which was the highest in 28 years.

However, Bitcoin's unexpected bearish break on Saturday, which saw the cryptocurrency fall from roughly $20,300 to the low $19,000s in a matter of minutes, an exceptionally big move in such a short period of time for Bitcoin, qualifies it as Coin of the Day. Due to the lack of liquidity over the weekend, BTC/USD quickly dropped below the $19,000 mark.

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The cryptocurrency has subsequently rebounded back beyond the $20,000 threshold, and at current prices at $19,100, Bitcoin is trading with daily losses of just over 6%, bringing its weekly losses to almost 30%. The world's largest cryptocurrency based on market capitalization is currently trading more than 70 percent below its November 2018 record highs slightly around $69,000.

This week's aggressive Fed move continues to weigh severely on cryptocurrency market sentiment. In an effort to combat US inflationary pressures that continue to develop (as seen by last Friday's US CPI data), the central bank has not only switched toward quicker rate hikes but also signaled higher interest rates for the remainder of this year and 2023.

Bitcoin and other cryptocurrencies are viewed as extremely speculative investments. These types of investments typically perform badly when central banks (the Federal Reserve being the most significant) tighten financial conditions, which discourages risk-taking. Tighter financial conditions also boost government bond rates, increasing the "opportunity cost" of not investing in this secure asset class, and increase the adverse risks to economic growth as a result of less economic borrowing.

What Will Bitcoin Do Next?

Bitcoin can only achieve a durable return if US and global economic circumstances improve and the Fed modifies its present hawkish stance. This implies a persistent lessening of inflationary pressures in the United States, which would allow the Federal Reserve to relax monetary policy.

This much-needed fall in inflation is made more difficult by the fact that global commodity (energy) prices remain elevated for primarily geopolitical reasons (Russia's invasion of Ukraine, OPEC+ supply reduction) and are likely to remain elevated for some time. With several major economies, including the United Kingdom, the Eurozone, and the United States, apparently in or on the verge of recession, the majority of economists believe that consumer weakness might mitigate the impact of global pricing by the end of this year/in 2023.

Consequently, we may have to wait a while for a clearer picture of inflation. As long as this uncertainty persists, traders will continue to price in the possibility that the Federal Reserve would pivot in an increasingly hawkish direction. In other words, if an inflationary cycle is beginning, it may require rates in the 5-6 percent range to spike, which is far higher than the peak interest rates the Fed is predicting at the moment, which are below 4 percent.

In light of all this uncertainty, which does not appear likely to abate in the near future, Bitcoin's near-term prognosis remains negative. Now, the $20,000 level will be viewed as short-term resistance. If BTC/USD were to break over $25,400 in May, the next significant region of resistance would be the May low. In light of the present macro environment, a decline to test 2019 lows around $13,800 appears more plausible than a rebound towards $30,000.