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Bitcoin and other major cryptocurrencies slumped on Monday as traders shifted focus to upcoming inflation reports and the latest developments in the SEC’s legal battle against Ripple Labs.
The price of Bitcoin dropped over 2.8% to trade around $25,004, falling below the key $25,000 support level for the first time since June, according to data from Coin Metrics. Ethereum also declined roughly 4% to $1,540.
The broader crypto market saw steep losses, led by altcoins. XRP plunged 5% following the SEC’s move on Friday to appeal a court ruling in favor of Ripple Labs. Polygon’s native token and Polkadot’s DOT also dropped 4%, while losses exceeded 3% for Binance Coin, Solana, and Litecoin.
“It feels like fatigue, and with general pullback in liquidity from market makers any move lower tends to be more volatile,” said Darius Tabatabai, co-founder of Vertex Protocol. “That said, the environment is challenging with volumes still low overall and users not returning to crypto in droves as of yet.”
Bitcoin has been confined to a tight range between $25,000 and $30,000 for most of 2022. Lackluster trading volumes and liquidity have weakened attempted rallies to the upper boundary of that band. According to Coin Metrics, August saw the lowest monthly trading volume in over four years.
Investors are now looking ahead to the release of two key inflation reports this week — the Consumer Price Index on Wednesday and the Producer Price Index on Thursday. Consensus estimates point to elevated inflation readings due to lingering energy cost pressures.
While high inflation could catalyze Bitcoin adoption in theory, persistent price rises may also steer risk-averse investors away from volatile assets like crypto. The data could provide clues into the Fed’s rate hike path. More aggressive tightening could further dampen risk appetite.
“Crypto traders are keeping a close eye on inflation metrics,” said David Jones, analyst at Capital.com. “Surging prices have been a headwind for risky assets all year. If we continue to see hot inflation readings, it may lead to an extension of the crypto downtrend.”
Bitcoin has struggled to gain momentum in 2022 amid a broad risk-off shift in financial markets. The Fed’s tightening of monetary policy has particularly weighed on prices this year. Crypto trading volumes and liquidity also remain depressed since steep declines in May and June.
According to CoinGecko data, the total crypto market capitalization recently fell under $1 trillion — less than half of its November 2021 peak above $3 trillion. Industry leaders remain confident in the long-term outlook but see significant headwinds in the near-term.
“Crypto will face strong macroeconomic and geopolitical headwinds for at least the next six to 12 months,” said Crypto.com CEO Kris Marszalek. “It’s unlikely that crypto will escape the contagion effects of a broader risk-off environment.”
To revive momentum, Bitcoin may need a fresh catalyst like declining inflation or clear signs of a bottom in equity markets. Chainalysis Head Economist Philip Gradwell said a return of individual investors could also support the market.
“Institutions continue to accumulate, but we really need to see the retail crowd come back for a sustained recovery,” Gradwell noted. “So far, typical retail investors have been hesitant to buy the dip.”
For now, traders await the key inflation data that could set the tone for crypto prices heading into the fall. Some analysts say the bar is high for a positive market reaction even if price pressures cool.
“At this point, inflation would likely need to dramatically undershoot forecasts to trigger a meaningful crypto bounce,” said Oanda senior market analyst Edward Moya. “It still seems unlikely the Fed pivots on policy anytime soon.”