Cryptocurrencies weaken as dollar reaches 20-year high

Risk sentiment has cooled in the past couple of weeks, as hawkish Fed comments increased the odds of a steep rate hike in September. Rising prospects of aggressive economic tightening renewed recession fears, putting pressure on riskier assets, such as cryptocurrencies. US stock markets have weakened amid interest rate hike fears. The decline of stock markets has pushed cryptocurrency prices down, as crypto markets have been following stock market trends. 

The dollar climbed to new 20-year highs on Thursday, as the dollar index reached 110. The dollar’s ascended has been fuelled by rising rate hike expectations, putting pressure on competing assets. Severe rate hikes stifle economic activity, putting pressure on cryptocurrencies. Markets are pricing in a Fed rate hike of at least 50 bp in September, with increasing odds towards a 75-bp hike.

Bitcoin price fell below the key $20,000 level on Thursday but rebounded slightly later in the day. Bitcoin price is expected to continue testing this key support level throughout the week. Further support can be found at the $19,200 level, while resistance may be encountered near $21,800. 

Ethereum was also volatile on Thursday, testing the $1,550 support level. If Ethereum's price declines, it may encounter support near $1,300 and further down at the $1000 level, representing its lowest price since January 2021, while resistance may be encountered near $1,720 and higher up at $1,800.

Ethereum price has been boosted in the past month in anticipation of the so-called ‘merge’, which has been set to launch on September 19th. The Merge from the Proof-of-Work to the Proof-of-Stake method will be a significant network upgrade that is expected to lead to an increase in demand for Ethereum. Last week, the Ethereum price received a further boost from reports that the Ethereum Foundation is making significant progress toward the merger. The proof-of-stake Beacon chain may now take place ahead of schedule, between September 15 and 16.

BTC/USD 1h Chart

ETH/USD 1h Chart

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Written by:
Myrsini Giannouli

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