Bitcoin (BTC), the largest and most valuable cryptocurrency in the market has fallen below $22,000 for the first time since late July. Over the last few weeks, Bitcoin found strong support between $22,650 and $22,850, allowing the virtual currency to remain close to or above $23,000. But why is Bitcoin falling? We share with you three reasons why BTC has broken below $22,000.
Monetary Policy: Mixed Signals from Central Banks
One of the reasons for the recent price drop in the cryptocurrency market could be related to its correlation with macro events around the world. This time, stocks fell in Asia as the market opened considering there is no clarity regarding the next steps that the FED is expected to take to control inflation.
Over the last months, central banks around the world have been raising interest rates in order to reduce inflation rates, which have skyrocketed in most countries. In the United States alone, CPI hit 9.1% in July, while in Europe, some countries in the eurozone are experiencing inflation rates of 20%.
At the same time, inflation in countries like Germany continues to grow higher. Consumer prices in the country skyrocketed by 37.2% in July, registering a fresh record. It might be possible for Germany, to experience double-digit inflation rates like in the United Kingdom (UK).
Peak #inflation? Not in Germany! German Producer Prices accelerated to 37.2% in July, a fresh record. Meaning: Consumer prices will not have seen their peak yet. Perhaps Germany will also experience double-digit inflation rates like the UK. pic.twitter.com/D8jICU9QLn
— Holger Zschaepitz (@Schuldensuehner) August 19, 2022
With this inflation data, central banks might face the need to raise interest rates even further in the next few months. This is definitely something that could change the way in which market participants build their portfolios. Usually, with higher interest rates, volatile and risky assets tend to perform badly compared to stable and secure investment options such as bonds.
Technical Analysis
Some analysts consider that it might also be possible for Bitcoin to continue falling in the near future and that the recent price drop happened due to a technical correction. Since November 2021 when Bitcoin reached an all-time high, the market has been moving lower following a clear pattern.
Every single time that Bitcoin heavily fell, the trend was followed by a consolidation period. We see that the most recent consolidation period might have arrived at an end. Therefore, it will be very important to follow what could happen with Bitcoin in the near future and see whether there is a chance for BTC to recover.
Nevertheless, it might be possible for BTC to continue falling even lower if the digital currency is not able to stay above $21,600 (where there is an important support level (previous resistance).
Dollar (USD) Gets Stronger
In periods of turbulence and uncertainty, the reserve currency of the world gets more demanded. This time, the U.S. dollar registered strong gains as the FOMC meeting minutes showed a hawkish FED.
This situation has had a negative effect on most currencies around the world with the Australian Dollar (AUD) collapsing, and the British Pound falling below 1.20 USD. Therefore, this could have also been one of the reasons why Bitcoin slid through the $22,000 support level and reached $21,650 in recent hours.
