Market Wrap: BTC Falls Below $20K as Crypto Bounce Loses Steam

After surging earlier this week, bitcoin resumed its more recent slump below $20,000 on Wednesday amid a sell-off by retail investors.

The largest cryptocurrency by market capitalization was recently trading at about $19,900, down over 4% over the past 24 hours. The decline comes two days after bitcoin climbed past $21,000 as investors bought a weekend dip to two-year lows.

“The global crypto market remains vulnerable to further selling pressure,” Oanda senior analyst Edward Moya wrote in an email, but he also noted that “a consolidation could be around the corner as the challenging macro environment is close to being fully priced in.”

FxPro senior market analyst Alex Kuptsikevich said that investors were premature in buying the latest dip because the wider economic conditions and the U.S. central bank's monetary policy are less favorable for assets than they were during previous downturns.

“Retail shoppers risk being caught swimming against the financial current, which is hardly a successful strategy,” Kuptsikevich wrote. “History suggests that enthusiasts risk running out of steam soon, being left with depreciating assets and losing confidence for years that equity or cryptocurrency markets are a worthwhile place for their money.”

Most altcoins dropped in tandem with BTC, indicating that investors' appetite for taking risks remains low. Ether (ETH), the token of Ethereum, the second largest blockchain, underperformed, dropping more than 6% in the last 24 hours.

The S&P 500 and the tech-heavy Nasdaq 100 index were roughly flat as investors digested congressional testimony by Federal Reserve Chairman Jerome Powell, who indicated that the Fed would maintain its hawkish monetary course to rein in inflation, possibly at the expense of a recession.

Rising prices, which have stemmed heavily from increased energy costs, continue to bedevil the U.S. economy, although West Texas Intermediate crude oil, a measure of wider energy markets, fell below $102 on Wednesday. Meanwhile, U.S. Treasurys and the U.S. dollar, which investors consider safe haven assets, closed lower.

"Wall Street remains hopeful that the Fed will monitor the impact of rate hikes on the economy," Oanda's Moya told CoinDesk, adding that "risk appetite remains elusive as global recession fears intensify."

Powell told the Senate Banking Committee that a soft landing “is going to be very challenging” and that a recession is “certainly a possibility.

“We are not trying to provoke and do not think we will need to provoke a recession, but we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market, as much as anything else,” he said.

Inflation is still running at a four-decade high of 8.6% in May, a level that surprised economists, traders and even Fed officials. Powell said the Fed will continue to raise interest rates until it sees a clear sign that inflation is cooling down.

“Financial conditions have already priced in additional rate increases, but we need to go ahead and have them,” he said.

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Most digital assets in the CoinDesk 20 ended the day lower.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.

UPDATE (June 22, 2022, 21:34 UTC) Changes headline, subhead and other price information to reflect bitcoin's decline below $20,000.