Bitcoin drops after Warsh speech as hike odds hit 57% – Can BTC reclaim $80K?
BTC is caught up between Fed rate hike fears and debasement trade narrative
Bitcoin price dropped by 3% to $77K following Fed Chair Kevin Warsh’s hawkish speech during the Jackson Hole event.
In his speech, Warsh signalled that the Fed was far from done with fighting inflation, despite recent macro readings.
We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.
For the Summer inflation prints, Warsh added,
While this summer’s PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved.
Why did Bitcoin fall below $80K?
U.S. equities and crypto markets interpreted Warsh’s remarks as hawkish.
The tech-heavy Nasdaq fell 0.52%, while the S&P 500 declined 0.25%. Crypto followed, led by Bitcoin’s 3% drop.
The crypto asset rallied 30% in H2 of August, thanks to the Treasury’s planned $1T intervention to curb rising bond yields. Interestingly, the upswing helped BTC reclaim the crucial 200-day Moving Average (MA).
But the rally has since stalled below $80K, delaying it from reclaiming the 50-week MA ($81.8K) to officially mark the end of the BTC bear market cycle.
So, how will BTC navigate the hawkish Fed and the so-called “debasement trade” as Q3 comes to a close?
Will BTC rally despite September’s Fed rate hike fears?
Inflation directly impacts Fed interest rate policy and risk sentiment across markets. After Warsh’s speech, interest rate traders repriced September’s Fed rate hike to 57%. This was a +20% jump from the previous week, reinforcing renewed Fed rate hike fears.
Similarly, BTC Option traders, primarily sophisticated professionals and institutions, also scampered for downside protection.
This was illustrated by the BTC 25 Delta Skew, which rose from -10% to nearly 5%, marking a +15% increase. It meant renewed demand for downside protection.
During last week’s BTC explosive rally, the metric slipped below 0% for the first time this year. It showed that traders were winding down their downside hedging, as most analysts expected the rally (debasement trade) to continue amid U.S fiscal debt and bond market fallout.
Now, the metric’s weekend spike implies that Warsh has forced BTC bulls to rethink their strategy.
Still, analyst Luke Gromen thinks the bond market crisis will overshadow Fed rate decisions in the short term.
It remains a variant perception that both Fed hikes or cuts will cause the long end to rise…even as long bond yields are now up on Warsh’s ‘hawkish’ speech today.
That said, if the Fed rate hike fears deepen and drive market sentiment, BTC price could retrace towards the 200-day MA ($69.3K).
However, if the debasement trade narrative extends, then the $80K level could be turned into support for the next leg of the uptrend.
Final Summary
- Bitcoin fell 3% to $77,000 after Kevin Warsh’s hawkish Jackson Hole speech.
- Nasdaq declined 0.52%, while the S&P 500 fell 0.25%. The probability of a September Fed rate hike increased to 57%.
