Why did the Bitcoin price just dip below US$20,000?

Cryptos and other risk assets like high growth tech shares have been closely correlated this year.

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Key points

  • The Bitcoin price is back below US$20,000
  • Cryptos have come under renewed pressure following yesterday’s inflation figures out of the United States
  • The US Fed is now expected to continue with aggressive rate hikes, unwelcome news for risk assets like Bitcoin

The Bitcoin (CRYPTO: BTC) price slipped back below the psychologically important US$20,000 level as most Aussies were just starting their day.

As the sun peaked over eastern shores, the world's number one crypto was trading for US$19,793.

The Bitcoin price briefly managed to break back above US$20,000 but in the afternoon, it has dipped back to US$19,995.

Though still commanding an impressive market cap of some US$384 billion, BTC is down a painful 71% since hitting its all-time highs of US$68,790 on 10 November last year.

Why is the Bitcoin price again under pressure?

Bitcoin came under renewed pressure on Wednesday night following an unexpected uptick in inflation figures out of the United States.

Investors had been hoping to see inflation in the world's top economy easing. Instead, it went the other direction. Consumer price inflation notched 0.1% higher in August month on month. Core inflation, which takes out food and energy prices, increased a sharp 0.6% from July.

This, of course, bodes poorly for risk assets like the Bitcoin price and most all cryptos. August's higher inflation figures virtually lock in further aggressive tightening by the US Fed, the world's most influential central bank.

Commenting on the outlook for rates in the US, head of US economic research at Renaissance Macro Research Neil Dutta said (courtesy of Bloomberg):

The CPI report increases the odds that the Fed hikes by at least another 100 basis points over the November-to-December time frame. This takes the federal funds rate above 4% by year end.

Chief economist at KPMG Diane Swonk agreed, adding, "The CPI puts a 1% hike on the table, and given the hawkish tone the Fed has delivered, ups the ante they will do it."

The tech-heavy NASDAQ, a solid proxy for investor risk appetite, shed almost 5% on the news.

The Bitcoin price, which stood at US$22,674 before the inflation figures were released, has lost 12% since then.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia has positions in and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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