The prices of bitcoin and ethereum, the two leading cryptocurrencies, fell to their lowest levels in a week on Wednesday, as investors awaited the release of the Federal Reserve’s minutes from its July meeting. The minutes are expected to shed light on the Fed’s views on inflation, tapering, and interest rate hikes, which could have significant implications for the crypto market.
Bitcoin Breaks Below $29,000 Support
Bitcoin (BTC), the largest cryptocurrency by market capitalization, dropped to an intraday low of $29,061.95 on Wednesday, according to data from TradingView. This was the lowest level since August 7, when the price briefly dipped below $28,700. Bitcoin has been trading in a narrow range between $29,000 and $30,000 for most of August, as it struggles to find a clear direction amid low volatility and volume.
The downward move came despite a bullish crossover between the 10-day and 25-day moving averages, which usually indicates an uptrend. However, the relative strength index (RSI), a momentum indicator, showed a bearish divergence, as it slipped towards the 40 level, indicating weakening buying pressure. As of writing, bitcoin is trading at $29,230.67, down 0.7% on the day.
Ethereum Follows Bitcoin’s Lead
Ethereum (ETH), the second-largest cryptocurrency by market cap, also declined for the second consecutive day, as it followed bitcoin’s lead. Ethereum fell to an intraday low of $1,816.33 on Wednesday, the lowest level since August 9, when it touched $1,800. Ethereum has been facing strong resistance at the $1,850 level, which coincides with the 50-day moving average.
The RSI on ethereum also showed a bearish sign, as it broke below the 41 support level, indicating increasing selling pressure. The next major support level for ethereum is at $1,780, which was the low point on August 5. As of writing, ethereum is trading at $1,823.87, down 1% on the day.
Fed Minutes Could Trigger Volatility
The crypto market is likely to see increased volatility in the coming hours, as the Fed releases its minutes from its July 27-28 meeting at 2 p.m. ET. The minutes will reveal the Fed’s thinking behind its decision to keep its monetary policy unchanged, while acknowledging that the economy has made progress towards its goals of maximum employment and price stability.
Investors will be looking for clues on when and how the Fed will start tapering its $120 billion monthly bond purchases, which have been supporting the financial markets since the onset of the pandemic. The Fed has said that it will provide advance notice before reducing its asset purchases, but has not given a clear timeline or criteria for doing so.
The minutes will also show how the Fed views the recent surge in inflation, which hit a 13-year high of 5.4% in July. The Fed has maintained that inflation is transitory and largely driven by supply bottlenecks and base effects, but some analysts and policymakers have expressed concerns that inflation could become more persistent and force the Fed to raise interest rates sooner than expected.
The Fed’s stance on inflation and tapering could have a significant impact on the crypto market, as it affects the demand for riskier assets and the value of the US dollar. A hawkish Fed could dampen the appeal of crypto as an alternative store of value and hedge against inflation, while a dovish Fed could boost crypto as a way to diversify from fiat currencies.
