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Bitcoin and other cryptocurrencies fell on Monday, retreating from 20-month highs but with prices still near the peak of a recent rally. The days ahead see catalysts including the next Federal Reserve decision that could reignite sentiment.

The price of Bitcoin has fallen 5% over the past 24 hours to $41,550, sliding lower from levels near $44,500 on Friday, which marked the highest point for the largest digital asset since early April 2022before tokens plunged into a brutal and prolonged bear market. Bitcoin has surged by some two-thirds in two months, ending a multi-month stretch of subdued trading and spurring calls for a new crypto bull market.

A wave of profit-taking hit the cryptocurrency market on Monday morningwe saw a massive exit from long positions in low liquidity before the regular session in Asia. Strong demand for risk assets in traditional markets suggests that the market will try to get back on its previous growth track, said Alex Kuptsikevich, an analyst at broker FxPro. Thisdid not break the bullish trend. In our view, it will remain in force if Bitcoin manages to hold above $40,000.

Multiple factors have supported gains in crypto prices, including optimism that U.S. regulators will soon approve the first spot Bitcoin exchange-traded fund, which would be expected to usher in a fresh wave of investor interest. The improving macroeconomic backdropwith expectations the Fed will cut interest rates multiple times next yearand historically tight token supply also have helped.

Like the Dow Jones Industrial Average and S&P 500, Bitcoin has benefited from macro tailwinds as waning inflation and slowing growth support the prospect of rates coming down significantly next year from a generational peak.That is why the latest Fed monetary policy meeting this week, on Tuesday and Wednesday, looms large.

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While markets dont expect the central bank to lower borrowing costs this month, the press conference from Fed Chairman Jerome Powell will be scrutinized for signs of rate-cut timing, with traders currently pricing in the first cut as soon as March. Any dovish commentary from Powell, or indications rates could be lowered sooner rather than later, has the potential to restart the crypto rally in the absence of other major catalysts such as spot Bitcoin ETF news.

Overall, the tea leaves in crypto derivatives still point to bullish animal spirits. The most popular strike pricethe value at which the option can be exercised, representing a price targetacross all contracts is for Bitcoin at $50,000. There is a concentration of $50,000 Bitcoin call options for the Jan. 26 expiration.

Beyond Bitcoin, Ether the second-largest cryptofell 7% to below $2,200. Smaller tokens, or altcoins, also were weak, with Cardano down 9% and Polygon off 8%. Memecoins fell, with Dogecoin dropping 7% and Shiba Inu shedding 8%.

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Write to Jack Denton at jack.denton@barrons.com

Excerpt from:
Bitcoin Price Retreats to Start the Week. This Could Restart the Crypto Rally. - Barron's