(Kitco News) The cryptocurrency space saw another sudden crash over the weekend, as Bitcoin and Ethereum recorded significant losses, eroding future price prospects.
Bitcoin was below $ 28,000 on Sunday, down 6% over the past week. And Ethereum witnessed even bigger losses, hitting a low of $ 1,433, the lowest level in about a year and a half, and now trading at 15.6% a week.
The main macro factor that hurt the crypto space, which has been largely traded as a risky asset, was another hot inflation release. In May, inflation was at an annual rate of 8.6% in the United States, a new high of 40 years, compared to the forecast 8.3%.
In response to inflation data, Mohamed El-Erian, chief economic adviser to Allianz, told CNBC that the Federal Reserve should be even more aggressive with rate hikes.
“He needs to regain control of the inflation narrative … he’s now losing full control,” El-Erian said, referring to Fed Chairman Jerome Powell. “He has to move because if he doesn’t, he’ll chase the market, and he won’t get there.”
Inflation has not peaked, El-Erian added. “We need something to happen to stop this inflationary process that is spreading throughout the economy.”
Why were Ethereum losses so significant?
And while the macro environment also weighed heavily on Ethereum, the world’s second-largest cryptocurrency sold more due to the upcoming Merge issue. The merger refers to Ethereum’s transition to the most energy-efficient participation testing protocol from the working test protocol, which also uses Bitcoin.
The delay with the merger comes from the so-called difficulty bomb, a code within Ethereum designed to increase the computer difficulty for mining. It is designed to expel miners from the blockchain gradually. Once implemented and completed, the merger for the participation testing system could continue shortly thereafter.
With the participation test protocol, miners are no longer needed. Instead, people would bet their coins to check for new transactions and add them to the blockchain. This could consume 99% less energy than the working test.
What affected the price of Ethereum was that developers delayed the timing of the difficulty bomb to resolve some bugs that arose during the merger into Ropsten, one of Ethereum’s oldest test networks. Earlier, Ethereum co-founder Vitalik Buterin noted that the merger could happen in August if there were no significant problems. But this difficulty bomb delay could postpone that August date.
Bitcoin Outlook
Following the recent sell-off, which pushed prices below the $ 30,000 level, analysts are becoming more bearish with Bitcoin.
Fairlead Strategies founder and managing partner Katie Stockton told Kitco News that Bitcoin’s short-term outlook is “deteriorating.”
“Bitcoin has seen its daily stochastics fall after a silent reaction to the signs of short-term bearish depletion, which we consider a short-term bearish development. Weekly stochastics have failed to increase overselling levels, which “It simply came to our notice then.”
The poor performance of the stock market also weighs on Bitcoin. The level to see is whether $ 27,000 can be maintained. Otherwise, there is a risk of falling to $ 19,000.
“For bitcoin, it now appears to increase the risk of a new test of long-term Fibonacci support (~ $ 27.2 thousand), noting that medium- and long-term momentum indicators point to further disadvantages. secondary in the $ 18.3K- $ 19.5K range, “Stockton said.
Last week, U.S. Treasury Secretary Janet Yellen added heat to the debate over whether Bitcoin should be part of someone’s 401 (k) retirement plan.
“It’s not something I would recommend to most people who are saving for retirement … For me, it’s a very risky investment,” Yellen said at a New York Times event last week.
Yellen also did not rule out the idea that Congress might even begin regulating which assets may be part of a retirement plan.
This comes after Fidelity announced that it would allow Bitcoin as an option in its retirement plans. “I’m not saying I recommend it, but in my opinion it would be a reasonable thing to do,” he said.
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