The cryptocurrency market is in retreat, with Bitcoin down 8% from its recent peak, as investors await Federal Reserve Chairman Jerome Powell’s highly anticipated speech at the Jackson Hole Economic Symposium. Traders are looking for clues on the future of monetary policy, with a hawkish tone potentially putting further pressure on the digital asset.
On Wednesday, Bitcoin declined below $113,000, contributing to a decline in the broader crypto market as traders anticipated Federal Reserve Chair Jerome Powell’s speech at Jackson Hole.
Ethereum, XRP, and Solana were negative, resulting in a 1.5% decline in the sector to $3.9 trillion.
The world’s largest cryptocurrency is currently down approximately 8% from its previous record of over $124,000 set last week. On the day, Ethereum experienced a 1.2% decline to $4,162, while XRP experienced a 3.2% decline to $2.90.
Bitcoin’s steep rally earlier this month sparked significant profit-taking, culminating in the recent decline.
Traders Face $450m Wipeout as Ethereum Leads Liquidations
The market value to realized value ratio, a measure of unrealized gains, increased to 21% last week, indicating that most holders were holding onto substantial profits. Analysts asserted that this resulted in significant incentives to sell.
In the past 24 hours, liquidations have also increased during the downturn. In the previous 24 hours, Coinglass data indicated that over 128,000 merchants were eliminated, resulting in a total loss of $450.7 million.
Ethereum was the catalyst for the surge, with nearly $175 million liquidated, and Bitcoin followed at $101 million. Most of the wipeouts were long positions, accounting for more than $373m. This demonstrates how overleveraged bullish wagers were compelled to exit as prices declined.
Markets Expect Caution From Powell Amid Fragile Outlook
This retreat precedes Powell’s keynote address in Wyoming, which is only two days long. Investors closely monitor signals indicating whether the Federal Reserve is prepared to reduce rates in September or continue to prioritize inflation. In July, the economic data presented a varied picture, with headline consumer prices decreasing to 2.7%, core inflation increasing to 3.1%, and producer prices rising by 3.3%.
The Federal Reserve’s decision has been complicated by persistent price pressures and declining job growth, sparking stagflation concerns.
Bitcoin has frequently responded harshly to Powell’s statements at Jackson Hole. In 2022, a hawkish speech that reaffirmed tightening resulted in a 10% weekly decline. Market analysts anticipate that Powell will exercise caution this year, refraining from committing to reducing interest rates but allowing for flexibility if inflation trends weaken.
Institutional Flows Seen Offsetting Short-Term Market Weakness
Dom Harz, the co-founder of the Bitcoin DeFi protocol BOB, stated that the retreat is merely a temporary pause following the recent record highs. “This short-term correction is essentially mere noise, a minor diversion from the undeniable upward trajectory of Bitcoin and, more specifically, Bitcoin DeFi,” he stated.
His primary motivation was the ongoing institutional demand. “Bitcoin will continue to be propelled by mainstream and institutional adoption, as institutions accumulate the crypto asset.” He also stated that this will stimulate technological advancements in Bitcoin DeFi.
In the interim, Ruslan Lienkha, the markets chief at YouHodler, stated that it is premature to determine the outcome of the correction. “The current correction is still in progress, and the precise levels at which it will ultimately stabilize are uncertain,” he stated.
Medium-Term Investors Seen Securing Profits as Markets Look Stretched
Lienkha cautioned that the equities’ weakness could further exacerbate the decline. “For instance, a substantial correction in equity markets could also result in a more substantial decline in Bitcoin.” He also acknowledged that Bitcoin’s historical volatility has progressively decreased.
He stated that profit-taking indicates caution rather than a loss of confidence. Profit-taking is occurring currently, and in numerous instances, it indicates disciplined risk management. This is particularly true in the current environment, where institutional discussions increasingly emphasize that we may enter the bull market’s later phases.
Fund managers have expressed apprehension regarding the overvaluation of US equities, which has prompted some to secure gains in cryptocurrency. Lienkha stated that this trend is more about portfolio balance than explicit bearishness.
“While long-term investors are generally less influenced by these short-term dynamics, those who operate within medium-term horizons, such as two- to three-year cycles, frequently adopt relative strategies that encourage them to secure gains when markets appear stretched,” he added.
