- Over the weekend, bitcoin had fallen as low as $17,601.58.
- The cryptocurrency market has been hit by a number of factors, ranging from the collapse of stablecoin terraUSD to questions of solvency at crypto lender Celsius.
- Macroeconomic factors including high inflation and upcoming rate hikes from the U.S. Federal Reserve are also weighing on the market.
Bitcoin jumped on Monday, after the cryptocurrency fell below its 2017 high over the weekend, but investors remained on edge thanks to a slew of negative crypto headlines and macro factors keeping pressure on sentiment.
The world’s largest cryptocurrency by market cap climbed above the $20,000 mark for much of the day Monday. However, it last edged lower by less than 1% to $20,005.46, according to Coin Metrics. Over the weekend, bitcoin fell as low as $17,601.58. Meanwhile, ether inched higher by less than 1% to $1,102.86.
While investors will welcome the rebound, bitcoin still sits 70% below its all-time high, hit in November. It’s down 57% year-to-date. Many have suggested a market bottom could be close, but with so much economic uncertainty remaining, bitcoin still has more downside potential, according to Yuya Hasegawa, a crypto market analyst at Japanese bitcoin exchange Bitbank.
“Bitcoin’s weekend dip was, to put it simply, not deep enough,” he said. “The macro environment has not really changed from last week’s FOMC meeting: there still has not been a clear sign of inflation coming down and the Fed may still drive the economy into recession by raising rates too aggressively or simply by failing to tame inflation.
Dead cat bounce
With bitcoin unable to hold convincingly above $20,000, industry watchers said the rally might be short-lived.
Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC that unless the price of bitcoin closes above $23,000 on a daily time frame basis, “the odds are this is a dead cat bounce.”
“We’re oversold, so a bounce was expected,” he added.
The broader cryptocurrency market has been plagued by a number of issues in recent weeks, beginning with the collapse of algorithmic stablecoin terraUSD and associated token luna.
Attention has now turned to crypto lending companies that promise users high yields for depositing their digital coins. Last week, Celsius, a company with 1.7 million customers and nearly $12 billion of crypto assets under management, paused withdrawal of funds for customers, sparking concerns that it is insolvent.
Cryptocurrency companies have announced rounds of layoffs amid the market downturn. Coinbase, a crypto wallet and exchange, said last week it will cut 18% of full-time jobs. A lending firm called BlockFi said last week it will lay off a fifth of its staff.
Macroeconomic factors including high inflation and upcoming rate hikes from the U.S. Federal Reserve are also weighing on the market.
“When inflation is on the doorstep and with rate hikes in the offing, the risks of a recession round the bend are high,” Charles Hayter, CEO of CryptoCompare, told CNBC via email.
“The push me pull you of higher rates sapping cash from mortgaged house owners means people are psychologically bracing and paring back and digital assets are suffering thus.”
“Coupled with this, the pull back in the digital asset ecosystem has uncovered a number of systemic issues.