Risk Assets Retreat as Fed Chair Powell Gets Hawkish

By Sam Blumenfeld

This week, Federal Reserve Chair Jerome Powell gave his speech at the Kansas City Fed symposium, announcing his commitment to reducing inflation no matter the cost to the economy.

The realization that the Fed won’t be pivoting from economic tightening without making significant progress with inflation has caused other risk assets to react similarly, which will likely hurt sentiment in the short term.

As a result, Bitcoin (BTC, Tech/Adoption Grade “A-”) began to pull back, along with the broad market.

Bitcoin is down about 3% in today’s trading, hovering slightly below $21,000. And $20,000 is an important support level for BTC —its previous 2017 bull market peak sits just under it. Holding above it would be a positive sign.

The market leader has traded below its 21-day moving average of $22,800 since last Friday’s sharp sell-off, but it’ll be especially difficult for the asset to regain its short-term momentum with economic conditions getting tighter.

Here’s Bitcoin’s price in U.S. dollars via Coinbase (COIN):

Meanwhile, Ethereum (ETH, Tech/Adoption Grade “A”) is trading 6% lower today, and it’s broken below support at $1,600. The asset is still up 10% this month, but its chart is notably weaker considering the recent slide.

ETH is now in danger of extending its tumble after reversing its uptrend since the middle of July.

Ethereum fell below its 21-day moving average last Friday for the first time since July 14, but it will likely struggle to hold its ground from here as it loses momentum and market-wide sentiment worsens. However, the upcoming Merge could be the catalyst to turn it around.

The growing hype for the historic event could lead to a brief rally for Ethereum, but it’s important to note that the current state of crypto winter and worsening economic conditions for risk assets will likely weigh on pricing upside. Regardless, the positive potential benefits of faster transaction speeds and lower fees are bullish long term.

Here’s Ethereum’s price in U.S. dollars via Coinbase:

Index Roundup

Before today’s sell-off, most cryptocurrencies finished the seven-day trading week with minimal damage. The broader market was able to finish strong after a rough start, but most assets still finished in the red.

The Weiss 50 Crypto Index (W50) decreased 2.82%, but the pullback could have been worse without the midweek reversal.

The Weiss 50 Crypto Ex-BTC Index (W50X) dipped 0.66%, showing that Bitcoin underperformed most altcoins again.

Breaking down this week’s performance by market capitalization, we see that only the mid-caps were able to finish in the green.

The large-caps performed in the middle of the road, with the Weiss Large-Cap Crypto Index (WLC) losing 3.58%.

After lagging last week, mid-cap cryptocurrencies outpaced the other groups. The Weiss Mid-Cap Crypto Index (WMC) gained 1.96%.

After logging the only positive change last week, the smallest cryptocurrencies lost the most ground. The Weiss Small-Cap Crypto Index (WSC) declined 5.86%.

Despite significant early week volatility, most cryptocurrencies were able to rebound toward the end. However, with hopes of a Fed pivot squashed during Powell’s speech, it could be tough sledding for the broader market in the short term.

Notable News, Notes and Tweets

What’s Next

The crypto market has experienced elevated volatility recently, as investors weigh the current bear market, macroeconomic uncertainty and the push for regulations in the space. For now, these short-term headwinds will likely hinder crypto’s price movements.

However, crypto bear markets are inevitable, and significant gains would not be possible without significant volatility. As adoption and institutional ownership continuously increase, so does the industry’s long-term viability.

Periods of weakness allow long-term investors to accumulate at lower prices during sell-offs, and the next crypto bull run should reward those who exercise patience and discipline.

Best,

Sam