Bitcoin After Powell’s Speech

Bitcoin quivered but didn’t fold after Jerome Powell signaled higher-for-longer interest rates to fight inflation, a pattern that for brave prognosticators could be a hint of a floor for the digital token.

The largest cryptocurrency is down about 6% since Powell’s hawkish Aug. 26 Jackson Hole speech underlined that the Federal Reserve wants to subdue financial markets as part of a push to curb economic activity and contain price pressures.

That’s a smaller drop than traders are conditioned to expect in a volatile asset. It’s roughly in line with the rout in the tech-heavy Nasdaq 100 index over the period, whereas in the past Bitcoin losses have sometimes been orders of magnitude above the weakness in traditional assets during times of stress

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“Bitcoin is showing some resilience here as it has clawed back above the $20,000 level, despite widespread stock market weakness,” Oanda Senior Market Analyst Ed Moya wrote in a note. “Crypto traders are not used to seeing Bitcoin withstand a rout on Wall Street, so this could be a promising sign.”

The $20,000 level — while a far cry from the near-$69,000 record hit in November 2021 — is for some market watchers a gauge of whether beaten-down investor sentiment is holding up or vulnerable to yet more damage in a stomach-churning year of losses across assets.

Bitcoin climbed as much as 2% on Tuesday and was trading at about $20,400 as of 10:03 a.m. in London. Tokens ranging from Ether to Solana also posted modest gains amid a steadier mood in global markets.

Smaller Swings

Bitcoin’s average daily moves have compressed

Source: Bloomberg

Data analyzed since the beginning of 2022

Average daily Bitcoin moves, either to the upside or downside, have also compressed this month compared with earlier in 2022 — coming in at 2.4% for drops and 1.4% for climbs versus peaks of 4.1% and 3.4% respectively in June, according to data compiled by Bloomberg.

While the smaller swings might also support views that a floor is close, there are other indicators that caution against hasty judgments. For instance, seasonal trends peg September as a tough month and traders are paying a premium for options protecting against falls below $18,000.

For John Toro, head of trading at digital-asset exchange Independent Reserve, cryptocurrencies continue to trade as “a high-beta risk asset.” But he expects the upcoming upgrade of the Ethereum network — the Merge — to continue to “attract investment capital and support dips in cryptocurrency pricing.”