(Bloomberg) — Bitcoin declined after reaching the highest levels since mid-June on Saturday amid optimism that the market may have recovered from its worst levels.
The largest cryptocurrency dropped as much as 3.6% to $22,958 on Monday after breaking above $24,000 over the weekend, its highest since mid-June. Its 27% gain in July made for the best month since October. Ether slid more than 5% at the start of the week as well after posting a 70% jump last month, its best since January 2021.
“August promises to be every bit as stomach-churning for Bitcoin with further bouts of volatility guaranteed,” said Antoni Trenchev, co-founder and managing partner at crypto lender Nexo.
Yet he’s “leaning towards a re-run of July’s resilience over June’s capitulation” after “Bitcoin absorbed last week’s one-two macro punch” of the Federal Reserve rate hike and data showing the US economy contracted for a second consecutive quarter.
Bitcoin had fallen below $20,000 during late June and July amid concern about interest-rate hikes and inflation, as well as troubles internal to cryptocurrencies, like the implosion of the Terra/Luna ecosystem and hedge fund Three Arrows Capital.
Its still well off the record high around $69,000 from November, but has begun showing some strength of late as the stock market has also rallied. In July, the S&P 500 gained 9%, the most since November 2020.
“Cryptos and equities have been positively correlated to one another, and that has especially been the case for the mega caps,” Jake Gordon at Bespoke Investment Group wrote in a note at the end of last week. He cited solid earnings results from big-cap tech firms, which “likely assisted in boosting risk sentiment to lift cryptos higher.”
Still, Bitcoin is hitting up against some major resistance points and its recent rally might not have legs, according to Katie Stockton, co-founder of Fairlead Strategies, a research firm focused on technical analysis.
“Bitcoin remains a helpful gauge of risk appetite as one of the most highly volatile risk assets,” she said. “The implications are for the rally to fade in the days ahead irrespective of the breakout in the SPX.”
Here’s what others are saying:
“There is so much intellectual capital that’s being committed to the crypto space that something good eventually is likely to come from this,” said Jay Willoughby, chief investment officer at TIFF Investment Management. Still, he added that “the reason that we’re still not bullish on crypto is because there are no business models that we’re aware of that generate income outside of other crypto applications.”
“The Fed is right now driving how people are thinking about positioning their portfolios in the market. People are going risk-off for now and blockchain, digital assets have fallen into that bucket of risk assets given their high beta,” said David Kroger, digital data scientist at Cowen. “But as digital assets grow into a more mature asset class with institutional investors coming in, lots of adoption and development occurring on chain, I think we’ll see over time people looking at digital assets in a different light.”
Ed Hindi, chief investment officer at crypto hedge fund Tyr Capital, said $24,400 and $1,750 were the next strong technical points for Bitcoin and Ether to break through respectively.
“It was a quiet weekend with extremely illiquid market conditions,” Hindi said in an interview. “What happened is that the market tried to go through these and couldn’t because liquidity wasn’t there. But weekend activity is not really relevant because it tends to be reversed on Monday when the bulk of volumes come back into the market.”
(Updates prices, adds comment.)
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