Bitcoin Plunges to Near $20,000. The Fed Has the Attention of the Crypto World.

Text size

Crypto prices have suffered severe declines in recent days, outpacing the selloff in stocks.


Dusan Zidar/Dreamstime

The persistent slide in prices of


Bitcoin

and other cryptocurrencies continued on Wednesday as digital assets took another precipitous leg downward ahead of a key interest rates decision from the Federal Reserve.

Bitcoin has shed 10% over the past 24 hours to $20,300, having lost 30% since last Friday. The largest crypto is now flirting with the psychologically important $20,000 level, which it has not traded below since late 2020.

Like stock market investors, crypto holders are laser-focused on a monetary policy decision from the Federal Reserve. With inflation at a multi-decade high, the central bank already has moved aggressively to battle rising prices with tighter policy, including sizable higher interest rates. The risk is that the Fed can’t engineer a “soft landing,”or a cooling of inflation without causing a recession.

“If the Fed is heavy handed or if the crypto narrative gets worse, Bitcoin at $15,000 is possible,” Samir Kerbage, the chief product and technology officer at digital asset manager Hashdex, wrote in a note.

While Bitcoin and its peers should, in theory, trade independently of mainstream financial markets, they have shown themselves to be correlated to stocks — and especially tech stocks. A tumble for the


S&P 500

and


Nasdaq

indexes since Friday, following signs that inflation had yet to peak, has weighed heavily on digital assets.

But stresses in the crypto market itself, including major crypto lender Celsius suspending customer withdrawals, have added even more pressure on cryptos, which have sold off more severely than stocks. 

Exacerbating crypto declines have been major liquidations of leveraged positions in the crypto futures market. Positions on margin can be sold in the blink of an eye if the value of the collateral — often Bitcoin — falls below a required level. More than 100,000 traders with positions worth some $290 million have been wiped out in the past 24 hours, according to data from Coinglass.

“We may seek a quick pullback to $28,000-$30,000 if liquidations subside and Celsius concerns subside,” wrote Kerbage.

It was more of the same pain for other cryptos, including


Ether,

the second-largest. The token underpinning the Ethereum blockchain network dropped 14% to $1,050, having traded around $2,000 as recently as the end of last week.

“Bitcoin at $20,000 and Ether at $1,000 are the levels to watch,” Kerbage wrote. “If these psychologically meaningful levels are lost, we may see some significant fear in the market that may put more pressure on the short-term price action.”

Smaller cryptos, or altcoins, also suffered.


Cardano

and


Solana

each lost 12%. Memecoins also failed to hold up, with


Dogecoin

and


Shiba Inu

declining 11% and 8%, respectively.

Write to Jack Denton at jack.denton@dowjones.com