September 26, 2022

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Bitcoin plunged below $20,000 on Saturday after the Federal Reserve chairman “warned” about rising interest rates

Bitcoin plunged below $20,000 on Saturday after the Federal Reserve chairman “warned” about rising interest rates

On Saturday morning, bitcoin, the world’s largest digital currency, fell below $20,000. This is the first time since July 14 this year.

Market analysts are linking the decline to Federal Reserve Chairman Jerome Powell’s speech during Friday’s Jackson Hole meeting. The central bank governor’s clear communication that the fight to rein in inflation “will be painful” and require further rate hikes, sent all indicators down on Wall Street. The indexes haven’t fallen sharply since June. For the heavy industry Dow Jones, you had to go back to May to find a similarly strong drop of 3.03 percent.

Cryptocurrencies also fell after Powell’s speech on Friday. Bitcoin reached its lowest level since July 14 this year.

Powell’s admission that it would be painful before the Fed cut rates was too hawkish, Josh Olzevic, head of research at digital asset fund Valkyrie Investments, told Bloomberg.

Like Wall Street, Bitcoin is down for the second week in a row. Overnight through Saturday, the cryptocurrency fell 3.4 percent. On Saturday at 08:30 Norwegian time, bitcoin was trading at $1,947. This is the first time since July 14 that the world’s largest cryptocurrency has fallen below $20,000. Later in the day, the price rose to just over $20,000 again.

DNB Markets predicts a recession in the US

In an interview with DN earlier this week, chief economist Kjersti Haugland at DNB Markets stated that they expect a recession in the US after the new year. It’s bad news for the crypto market, says analyst Vetle Lunde at analysis firm Arcane Crypto.

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The past year has been marked by a very high correlation between cryptocurrencies and the US stock market, so there are good reasons to believe that the recession and weakness of US markets will reflect badly on the cryptocurrency market.

In June, the price of Bitcoin dropped below $20,000 after hitting $47,500 at the end of March. The decline of the cryptocurrency was explained by the tightening of monetary policy of the Federal Reserve and several events in the cryptocurrency market that created uncertainty. Among other things, cryptocurrencies Luna and Terra have collapsed, and Coinbase, one of the largest crypto platforms in the world, has withdrawn 18 percent of its employees, nearly a fifth of its workforce.

Although the consequences of a recession will be significant, Lund stresses that central banks around the world are now standing “in a difficult balance” between inflationary pressures and recession fears.

If the Fed shows signs of weakness as a result of this dilemma, it is reasonable to believe that what we are reflecting well on Bitcoin, says Lundy, then points to the prospects for a cautious increase in rate hikes.

Last week, bitcoin traded between $20,000 and $22,000. Ether, the second largest cryptocurrency, fell 5.5 percent to $1,471. While cryptocurrencies Solana and Avalanche fell by as much as 6.4 and 6.9 percent after the Federal Reserve Chairman’s speech on Friday.

Maintains a restrictive policy

Investors around the world took a close interest in Federal Reserve Chairman Jerome Powell’s speech, Jackson Hole, on Friday. The rhetoric was clear: The central bank will not back down in its fight against rapid inflation. The central bank governor said taming US inflation “will hurt American households and businesses.”

These are the unfortunate consequences of lowering inflation. And we’re going to keep going until we make sure the job is done, Powell said.

John C. Williams, President and CEO of the Federal Reserve Bank of New York, Lyle Brainard, Vice Chairman of the Federal Reserve Board, and Jerome Powell, President of the Central Bank, at Teton National Park where financial leaders from around the world met at a Jackson Hole gathering on Friday .

John C. Williams, President and CEO of the Federal Reserve Bank of New York, Lyle Brainard, Vice Chairman of the Federal Reserve Board, and Jerome Powell, President of the Central Bank, at Teton National Park where financial leaders from around the world met at a Jackson Hole gathering on Friday . (Photo: Jim Urquhart/Reuters/NTB)

The Fed chair also expressed that, unlike during the high inflation of the 1960s and 1970s, the central bank would keep interest rates high until it saw a clear drop in inflation.

Restoring price stability may require maintaining a restrictive policy for some time. The Fed chief said history is a strong caution against easing policy too soon.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using the links that lead directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.