Bitcoin price is recovering after falling below $19,000 this week for the first time since the crypto market crash in June. But some experts say it could fall even further this month.
Bitcoin climbed above $21,000 for the first time since late August on Friday morning, with ethereum rising above $1,700 for the first time since late last month.
Before Friday’s gains, Bitcoin and ethereum prices have been falling since a mini-rally in early August, and there’s no end in sight for macroeconomic factors that experts say will continue to hold them up. September also has a history of underperformance – more bad news for bitcoin and ethereum, which increasingly track stock market performance.
Bitcoin and ethereum prices fell last week after Federal Reserve Chairman Jerome Powell hinted at more federal interest rate hikes. It could be a sign of things to come: The Fed’s next meeting will take place on September 20-21, and another rate hike is expected.
Conflict and global challenges are contributing to America’s stubborn inflation, experts say. Russia’s war in Ukraine is in its seventh month, and the European energy crisis is likely to bring a harsh winter. And then there is the strained relationship between the US and China.
“The geopolitical situation is dominating the conversation. Constant war means constant inflation,” says Martin Hiesboeck, head of blockchain and crypto research at Uphold. “At the same time, we have a situation we’ve never had before: almost full employment, an expanding economy, and yet unprecedented price increases.”
Here’s why all of this could spell trouble for bitcoin and ethereum prices this month:
The economy is affecting riskier assets like Crypto
When economic uncertainty is high, confidence in riskier assets like crypto and tech stocks falls.
“Retail traders are starting to panic again as meme and crypto stocks come under pressure,” according to Edward Moya, a senior market analyst at brokerage firm Oanda. Moya continues to see correlation between bitcoin and tech stocks, and “that could spell trouble for bitcoin.”
As US companies continue to reduce the number of employees through layoffs, the stock market continues to lag behind. The ramifications for bitcoin, ethereum and the crypto market are clear, according to Moya.
“If the mood remains that it will be a bad September on Wall Street, a retest of the summer lows seems inevitable,” Moya says.
Crypto expert and market analyst Wendy O says bitcoin needs to move above $26,700 for it to become short-term bullish. Bitcoin hasn’t come close to that price since June.
“Will we be able to do this? I don’t know yet, but one thing I’m noticing with bitcoin is that we kissed $24,800 [on July 30] and we had some attempts to support and go back higher, but we weren’t able to do that,” says O. “We can do a little bit of a retest, but then we continue to go higher.”
Both Moya and O have said that bitcoin could fall to $10,000 or below before there’s any reason to think we’re coming out of the current crypto winter.
Global conflict is hurting crypto prices
Geopolitical tensions have had a negative effect on crypto prices in recent weeks.
Cryptocurrencies could fall back to the lows we saw in June, perhaps even further, if geopolitical tensions continue to intensify around the world, experts say. While July was the best month since 2020 for stocks and cryptocurrencies, rising tensions between China and the US, the world’s two largest economies, “will not support risk appetite anytime soon,” according to Moya.
“The macroeconomic environment continues to cause fear for investors, as the European energy crisis dominates the headlines,” according to Marcus Sotiriou, a market analyst at digital asset broker GlobalBlock. “Germany’s sanctions against Russia have led to the shutdown of the NordStream gas pipeline, which has resulted in increased gas prices.”
The crypto market has been closely linked to the stock market since the beginning of the year, so when stocks fall due to the current conflicts in the world, it is very likely that cryptocurrencies will also fall. Additionally, the US economy is struggling with four-decade high inflation, rising interest rates and a possible recession. Hiesboeck says more uncertainty about world politics and the US economy means more unpredictability of markets and “investors don’t like uncertainty”.
“The July rally was just an interlude, driven purely by short-term opportunities rather than the long-term positioning of the major players,” says Hiesboeck.
What crypto investors need to do to navigate uncertainty and volatility
Volatility is the norm with crypto, which is why experts recommend keeping your crypto investments to less than 5% of your overall portfolio.
Experts also say to prioritize other aspects of your financial life before investing in crypto, such as saving for emergencies, paying off high-interest debt, and building a conventional investment portfolio. You should also only invest what you would be okay with losing, as for some investors this possibility becomes a reality.
