Bitcoin dipped below the $20,000 level on Sunday night into Monday morning as investors fled risky assets following a hawkish speech by Federal Reserve Chairman Jerome Powell.
The flagship cryptocurrency tumbled as low as about $19,500, the lowest level since mid-July. Bitcoin has struggled in recent months and fell below the $21,000 price point, where it remained throughout last week, following Powell’s speech Friday in Jackson Hole, Wyoming.
After its multihour dip into the teens, bitcoin was able to regain some footing on Monday, popping slightly and trading at about $20,300. Bitcoin hit its zenith last year when it traded at a whopping $69,000 per coin. The rival cryptocurrency Ethereum was trading above $1,500 on Monday, well below its peak of more than $4,800, notched last November.
The news comes after Powell generated waves in the market following his hawkish speech, in which he warned of economic “pain.” Markets are now pricing in another historic interest rate hike given the tenor of Powell’s closely watched annual speech.
HAWKISH POWELL SPEECH RATTLES MARKETS WITH SPECTER OF ENORMOUS RATE HIKE
“Reducing inflation is likely to require a sustained period of below-trend growth,” Powell said. “Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”
As inflation reaches historic multidecade highs and the Fed continues to hike interest rates, investors are fleeing the cryptocurrency market in favor of less risky assets.
The cryptocurrency market has moved somewhat in tandem with traditional stocks, which experienced a sharp sell-off following Powell’s speech, as investors fear a recession brought on by the Fed’s historically aggressive tightening cycle.
Stocks across the board saw losses on Friday as investor fear of another massive rate hike next month translated to fear and uncertainty in the market. Stocks continued their losses on Monday, with the S&P 500 down 0.72%, the Nasdaq off about 0.9%, and the Dow Jones Industrial Index tumbling by more than 200 points.
During its last meeting, Fed officials opted for a 75-basis-point rate hike — which is three times the size of normal rate hikes. That came after the central bank hiked rates by the same degree at its June meeting.
Prior to Powell’s speech, a majority of investors and Fed watchers were anticipating a 50-basis-point hike, but now, they are expecting another huge jump in interest rates.
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The likelihood of such a hike occurring was pegged at about 65% on Monday following the Jackson Hole speech, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices. A month ago, those same odds were only pegged at 28%.
The Federal Open Market Committee is set to meet on Sept. 20-21, when it will decide the degree to raise rates and release updated economic projections for metrics such as inflation, gross domestic product growth, and unemployment.
