Bitcoin (
BTC
pointers down
$19,135
The price struggled to hold a marginal gain of 0.23% on October 20, but in general, cryptocurrency prices are falling across the board and the market as a whole is still in a sharp downtrend. The price of bitcoin continues to trade below $20,000, a level that many investors see as a psychologically significant support and resistance level.
Concern over the “lack of progress” by the US Federal Reserve in containing high inflation is a likely reason for the long-term malaise in cryptocurrency prices. On October 20, Philadelphia Federal Reserve President Patrick Harker suggested that higher interest rates were not effective in curbing inflation and concluded that “we will continue to raise rates for some time to come.”
Many analysts believe that the Fed’s interest rate hike represents another policy blunder – the first too long of a solution to rising inflation – and that a deep recession will begin in 2023.
The September consumer price index showed an increase in consumer prices by 0.4%. According to the Bureau of Labor Statistics, consumer prices rose 8.2% from last year.
In addition to a 0.4% rise in consumer prices, the core consumer price index rose 0.6% mom from September and 6.6% from the past 12 months when food and energy prices were cancelled.
In short, rising inflation is the last thing the Fed wants. The Fed’s rate hike is intended to calm the economy and contain high inflation, so the higher-than-expected October 13 report is likely to lead to another round of 0.75 basis point hikes in the coming months.
Due to the high correlation between crypto markets and stocks, bitcoin price action tends to follow the direction of the S&P 500 and Dow, and a series of economic events that occur in mid-October may continue to put pressure on crypto prices.
The following dates highlight important economic events that have influenced investor sentiment in the cryptocurrency market in the past:
October 17 – end of the month: Q3 earnings
October 28: PCE price index
A number of large US companies have reported their quarterly earnings this week, and the mixed results have caused volatility in stock markets. Tesla (TSLA) shares fell 6.2% after missing its third-quarter earnings target as the electric car maker cited production and supply issues.
Apart from these upcoming events, the strength of the US dollar and the dangerous escalation of the conflict between Ukraine and Russia continue to put pressure on all markets.
Let’s take a closer look at three reasons why cryptocurrency prices will continue to fall in 2022.
Fed rate hike
Rising interest rates increase the cost of borrowing money for consumers and businesses. This has the indirect effect of increasing the operating costs of a business, the cost of goods and services, manufacturing costs, wages, and ultimately the cost of just about everything.
Uncontrolled high inflation is the main reason for raising interest rates by the US Federal Reserve. And since the rise in prices began in March 2022, bitcoin and the cryptocurrency market as a whole have been experiencing a correction.
When monetary policy or indicators that measure the strength of the economy change, risky assets tend to signal or outperform equities. In 2021, the Fed began signaling its plans to eventually raise interest rates, and the data shows a sharp correction in the price of bitcoin by December 2021. In a way, bitcoin and ethereum were the Canary Islands in a coal mine, indicating what stock was in store for. markets.
If inflation starts to decline, the economy improves, or the Fed starts signaling a reversal in its current monetary policy, risky assets such as bitcoin and altcoins could become “Canary Islands in a coal mine” again, reversing returns. Risk is about investor sentiment.
The constant threat of regulation
The crypto industry and regulators have a long history of incompatibility, either due to various misconceptions or distrust of the real use case for digital assets. Without a structure to regulate the crypto sector, different countries and states have a large number of conflicting policies on how to classify cryptocurrencies as assets and what constitutes a legal payment system.
The lack of clarity on this issue is affecting growth and innovation in the sector, and many analysts believe that the popularization of cryptocurrencies is impossible until a set of agreed and generally understood laws is passed.
