Since mid-July, Bitcoin (BTC), the flagship cryptocurrency, has encountered significant challenges in its price action following a remarkable climb to a new yearly high.
However, in a matter of days, the market momentum shifted, leading to an uphill battle for bulls as they fought to defend critical support levels and prevent further declines.
Nevertheless, their efforts proved insufficient, as Bitcoin has now breached the crucial $28,000 mark and its 50-day Moving Average (MA), which was previously regarded as a robust support line for the digital asset.
This ongoing downtrend has intensified, with mounting selling pressure exacerbating the situation for Bitcoin.
Influential Bull Flips Stance Amidst $28,000 Meltdown
In a recent statement, Max Keiser, Senior Advisor of El Salvador’s President Nayib Bukele, highlighted the ongoing challenges that the rising US interest rates pose for Bitcoin’s price.
Keiser pointed out that as more capital flows into high-yielding instruments, the attractiveness of alternative investments like Bitcoin may diminish.
To provide further context, high-yield instruments or high-yield assets, refer to financial instruments or investments that offer a relatively higher rate of return compared to other traditional investment options.
These instruments are typically associated with higher levels of risk due to their potential for volatility or credit risk, which often attract investors seeking greater returns on their investments.
The concerns raised by Keiser shed light on the potential impact of the US Federal Reserve’s (Fed) decision to raise interest rates. Historically, Bitcoin and other cryptocurrencies have thrived in an environment of low-interest rates, as they offer an alternative store of value and a hedge against inflation.
However, as the Fed moves towards tightening monetary policy by raising rates, it introduces a new dynamic that could affect Bitcoin’s performance.
One of the primary challenges that higher interest rates present for Bitcoin is the competition for capital.
When interest rates rise, traditional investment instruments such as bonds and savings accounts become more appealing to investors seeking relatively stable returns.
This redirection of capital flow away from riskier assets like Bitcoin and the overall cryptocurrency market could potentially dampen demand and consequently put downward pressure on its price.
Past Patterns Reveal Total Market Cap Impact On BTC
Evidence supporting Keiser’s theory can be observed in the recent decline of the total cryptocurrency market capitalization.
As seen in the chart below, over the past few days, the market cap has experienced a consistent downward trend, breaking below the range of $1.15 trillion to $1.13 trillion. It has now fallen to around $1.085 trillion, posing a potential threat to liquidity within the nascent sector.
Historically, whenever the total market cap has dipped below the $1 trillion mark, Bitcoin has followed suit. This correlation was evident on June 10 when the market cap dropped below $994 billion.
Subsequently, Bitcoin’s price also declined, falling back to the $25,500 range after previously reaching an all-time high of $30,800 during that period.
Bitcoin’s current price action bears similarities to this earlier scenario, raising the possibility of a revisit to lower price levels. This potential outcome poses a risk to what many expected to be a solid bull run.
The ability of bullish investors to defend lower support lines and the continuation of selling pressure will be crucial factors in determining whether Bitcoin can maintain its upward momentum. Additionally, the persistence of limited liquidity adds further uncertainty to the market in the days and months ahead.
It is worth noting that Bitcoin’s resilience and ability to adapt to changing market conditions have been demonstrated in the past. The cryptocurrency has weathered various challenges and emerged stronger, gaining wider acceptance and adoption.
Nevertheless, the impact of rising interest rates cannot be ignored, as it introduces a new set of hurdles for Bitcoin’s price trajectory.
Featured image from iStock, chart from TradingView.com