- Cryptocurrencies have shed $380 billion in value in the past nine days, rocked by hot US inflation and Fed hawkishness.
- The Bitcoin price fell under $20,000 for the first time since December 2020 and Ethereum broke below $1,000.
- SOL, DOT and ADA have all held up comparatively better this week, but remain at risk of losses.
It’s been another ugly week for cryptocurrencies. Total crypto market capitalisation hit fresh annual lows near $820 billion on Saturday, extending a slump that really got kicking last Friday in wake of hotter-than-expected US inflation data. As of last Thursday, the total crypto market cap was closer to $1.23 trillion, meaning it has shed around $380 billion of over 30% in just nine days.
Last Friday’s hot US inflation figures had a chilling impact on markets as a result of forcing the US Federal Reserve to accelerate the pace at which it is raising interest rates, with the central bank raising interest rates by 75 bps on Wednesday and signaling that another 75 bps hike could be coming at its next meeting in July.
The bank also signaled its intention to take interest rates well into so-called “restrictive” territory (levels that will weigh heavily on lending, the housing market, and economic growth) by the end of the year and in 2023. All said, in the last nine days, the outlook has shifted to much tighter US financial conditions (which is typically a negative for risk assets like US stocks and crypto) over the next few quarters.
A more hawkish Fed also raises US recession risk, at a time when data is increasingly pointing to a loss of US economic momentum as consumers feel the bite of inflation and the tightening of financial conditions that has already occurred. This of course compounds downside risks to speculative asset classes like crypto, as investors consolidate their holdings into safer asset classes in order to ride through tough times.
Bitcoin was leading the latest leg of cryptocurrency market downside on Saturday and was last down over 6.0% on the day after breaking below the psychologically important $20,000 level for the first time since December 2020. This is the key break that many technicians have been waiting for, with some now likely to target a retest of 2019 highs in the upper $13,000s. At current levels in the low $19,000s, the world’s largest cryptocurrency has a market cap of around $370 billion.
In tandem with Bitcoin’s latest big drop below the important $20,000 level, Ethereum is also experiencing downside and breaking below key support levels of its own. ETH/USD briefly fell under the $1,000 level for the first time since January 2021, down over 7.0% on Saturday alone and extending its weekly losses to around 30%.
The next significant area of support is the May 2018 highs in the $830 per token area. Ethereum’s slide this week has seen it erase over $50 billion in market cap.
Solana’s losses this week have been comparatively modest versus the likes of Bitcoin and Ethereum, with SOL/USD last trading lower by about 7.5% and still within reach (though slightly below) the $30 per token level which it has consolidated around in recent days. That could just be a reflection of the fact that the cryptocurrency has performed so spectacularly badly in recent months and the bears have been getting weary.
SOL/USD, while still holding above weekly lows in the $25s for now, still looks vulnerable as bearish momentum returns to crypto markets for the weekend. The cryptocurrency looks at risk of testing a 2021 triple bottom in the $20 area.
It’s been a similar story for Polkadot this week, with the cryptocurrency for now holding up better than the broader market. For example, where Ethereum’s weekly losses currently stand at around 30%, Polkadot’s is closer to 8.0%, with DOT/USD holding above its earlier weekly lows just under $6.50 for now.
As with Solana, the cryptocurrency looks very much to be at risk of a bearish break as selling pressure returns to crypto markets for the weekend amid Bitcoin’s break below $20,000. A break below weekly support could see Polkadot fall back to trading within its late 2020 range in the $4.0-$6.0 area per token.
Cardano has been one of the better performing cryptocurrencies in recent weeks with analysts citing Fear Of Missing Out ahead of its network upgrade scheduled for the end of the month (called the Vasil hardfork). Whilst ADA/USD is still trading lower by about 7.0% on the week and has slipped upwards of 30% versus its earlier monthly peaks in the upper $0.60s per token, at current levels close to $0.45, it is still trading comfortably above annual lows from early May in the $0.39 area.
ADA/USD looks to very much be at risk of further downside if broader crypto conditions continue to worsen, however, with a test of these annual lows on the cards in the days ahead. The annual lows is a key support area going all the way back to 2018 and a break below it could really get the bears kicking.