Bitcoin fights to defend $80.000 as sentiment sours

Bitcoin has fallen below an important psychological threshold several times in recent days. The world’s largest cryptocurrency was trading at around $79.500 on Monday, taking it below the $80.000 mark. During the weekend, the price even briefly dropped to about $79.300. The downward move reflects growing nervousness on financial markets ahead of the US central bank’s interest-rate decision on Wednesday.

Federal Reserve

All eyes this week are on the Federal Reserve meeting, at which the central bank will announce its latest rate decision on Wednesday. According to the CME FedWatch Tool, investors see the chance of an immediate rate rise as limited, at about 9%. Yet the focus is not so much on the decision itself as on the tone of Fed Chair Kevin Warsh during his press conference.

Investors are particularly keen to know whether the central bank will leave the door further open to a rate increase in December. According to Jeff Mei, chief operating officer of crypto exchange BTSE, investors have already become more cautious. He argues that Bitcoin’s fall below $80.000 shows that market participants are reducing their exposure to riskier assets ahead of the Fed meeting.

Oil prices

The concerns are being fuelled by a combination of factors. Oil prices remain high, the conflict between the United States and Iran continues to escalate and inflationary pressure persists. According to Mei, this could prompt the Federal Reserve to signal a tighter monetary policy stance. Higher interest rates make borrowing more expensive and tend to reduce the amount of liquidity available for investment in equities and cryptocurrencies.

Moreover, the recent price weakness comes at a striking moment. October is traditionally known as one of Bitcoin’s strongest months. This year, however, the month looks set to end in a loss. If that happens, it will bring an end to a run of three consecutive months of gains for the digital currency. That would be a clear warning that market sentiment is set to deteriorate further for the time being.