Last Friday, Bitcoin fell almost 10%, triggering a broader sell-off in crypto markets. Most of this downfall was attributed to the bankrupt Celsius Network, which received approval to sell around 7,000 of its mined Bitcoin to cover the shortfall of its operations. This huge liquidation added more downside pressure to an already wobbly market as rising treasury yields and increasing recession fears caused the Crypto Fear & Greed Index to dip into the “Extreme Fear” category for the first time in five weeks.
Eyes on the Fed
Since Monday, cryptocurrencies have been rangebound, with investors remaining on hold until the Fed’s chair provides fresh clues around what’s next in the Bank’s normalization cycle. The latest relief rally in the crypto space came amid hopes that the Fed had reached peak hawkishness in early summer, but that narrative has been shuttered by renewed comments from policymakers regarding their strong commitment to tame inflation. Nevertheless, if the latest disappointing US PMI data is coupled with a soft PCE inflation print and a slowdown in consumption, the Fed could appear more cautious over the pace of tightening.
Aside from interest rates, Powell may also offer his thoughts on the ongoing quantitative tightening, which is the process of reducing the size of the Bank’s $9 trillion balance sheet. If the Fed follows the BoE’s plan and accelerates the process through active sales of bonds, it could inflict severe damage on cryptocurrencies as they have historically thrived in periods of excess liquidity.
Energy crisis kicks in
Unlike Cardano, Solana and Ethereum after ‘the merge’ is completed, Bitcoin operates with what is known as a proof-of-work consensus mechanism. On the other hand, the aforementioned altcoins have been using a so-called proof-of-stake model, which is significantly less energy intensive.
Thus, as winter approaches and there are no concrete signs that electricity and energy prices will cool off soon, while cryptos continue to trade well below their peaks, investors and miners will probably shift their focus to the sustainability of each coin. Bitcoin miners might watch their profit margins get squeezed, but don’t forget that the proof-of-work framework has a comparative advantage. Even though it consumes more energy, it allows miners to sell energy back to the grid, which is a feature that can provide huge gains in periods of excess power demand.
Levels to watch
Taking a technical look, Bitcoin has been experiencing a decline after the price failed to cross above the 25,200 region. Although the cryptocurrency managed to find its feet and recoup some losses, the price is trading sideways in the past few sessions as positive momentum has failed to strengthen.
Should the Fed strike a hawkish tone, the price could encounter initial support at the recent low of 20,670. Diving beneath that region, the spotlight may turn to the 18,700 barrier.
On the flipside, if buyers regain control and propel the price higher, the 50-day SMA currently at 22,470 could act as the first resistance region. Conquering this barricade, further upside moves might then stall at the recent rejection point of 25,200.