Bitcoin’s Price Is Rallying After Hitting a 3-Month Low This Week. Experts Say It Probably Won’t Last

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Bitcoin’s price is recovering after it dropped below $19,000 this week for the first time since the June crypto market crash. But some experts say it could still drop even further this month. 

Bitcoin climbed above $21,000 for the first time since late August on Friday morning, with ethereum rising above $1,700 for the first time since late last month.

Before Friday’s increases, Bitcoin and ethereum prices have been on the downswing since a mini rally in early August, and there is no end in sight to the macroeconomic factors experts say will keep holding them down. September also has a track record of poor performance — more bad news for bitcoin and ethereum, which increasingly track the performance of the stock market. 

Bitcoin and ethereum prices tumbled last week after Federal Reserve Chairman Jerome Powell hinted at more federal interest rate hikes ahead. It could be a sign of what’s to come: The next Fed meeting will take place Sept. 20-21, and another rate increase is expected. 

Global conflict and challenges are contributing to America’s stubborn inflation, experts say. Russia’s war in Ukraine is in its seventh month, and the related European energy crisis is likely to make for a tough winter. And then there is the strained relationship between the U.S. and China

“The geopolitical situation is dominating the conversation. Continued war means continued inflation,” says Martin Hiesboeck, head of blockchain and crypto research at Uphold. “At the same time, we have a situation we have never had before: almost full employment, expanding economy, and yet unprecedented price hikes.”

Here’s why all this could spell trouble for bitcoin and ethereum prices this month:

The Economy Is Influencing Riskier Assets Like Crypto

When economic uncertainty is high, confidence in riskier assets like crypto and tech stocks drops. 

“The retail trader is starting to panic again as meme stocks and cryptos fall under pressure,” according Edward Moya, a senior market analyst at brokerage firm Oanda. Moya continues to see correlation between bitcoin and tech stocks, and “that could spell trouble for bitcoin.”

As U.S. companies continue to reduce headcount via layoffs, the stock market continues to lag. The ramifications for bitcoin, ethereum, and the crypto market are clear, according to Moya. 

“If the mood remains that it will be a bad September swoon on Wall Street, a retest of the summer lows seems inevitable,” Moya says. 

Crypto expert and market analyst Wendy O says bitcoin would need to move above $26,700 for her to become short-term bullish. Bitcoin hasn’t come close to that price since June. 

“Are we going to be able to do that? I don’t know yet, but one thing I am noticing with bitcoin is that we kissed $24,800 [on July 30] and we had a couple of attempts to sustain and flip above but we were unable to do so,” O says. “We might get a little bit of a retest but then continue to go upward.”

Moya and O have both said bitcoin could still drop to $10,000 or lower before there’s any reason to think we’re coming out of the current crypto winter

Global Conflict Is Hurting Crypto Prices

Geopolitical tensions have had a negative effect on crypto prices in recent weeks. 

Cryptocurrencies could fall back down to lows as we saw in June, possibly even further, if geopolitical tensions continue to intensify around the world, experts say. While July was the best month since 2020 for stocks and crypto, rising tensions between China and the U.S., the two largest economies in the world, “won’t support risk appetite anytime soon,” according to Moya. 

“The macroeconomic environment continues to cause fear for investors, as the European energy crisis dominates headlines,” according to Marcus Sotiriou, a market analyst at digital asset broker GlobalBlock. “Germany’s sanctions against Russia have led to the shutdown of the NordStream pipeline, which has resulted in gas prices soaring.”

The crypto market has been closely correlated with the stock market since the start of the year, so when stocks fall because of the current conflicts in the world, cryptocurrencies most likely will too. On top of that, the U.S. economy is wrestling with four-decade high inflation, rising interest rates, and a potential recession. Hiesboeck says more uncertainty around the world’s politics and the U.S. economy means more unpredictability of the markets, and “investors don’t like uncertainty.” 

“The July rally was just an interlude, fueled purely by short-term opportunities and not long-term positioning of major players,” Hiesboeck says.

What Crypto Investors Should Do to Navigate Uncertainty and Volatility

Volatility is the norm with crypto, and that’s why experts recommend keeping your crypto investments to less than 5% of your overall portfolio.

Experts also say to prioritize other aspects of your financial life before investing in crypto, such as saving up for emergencies, paying down high-interest debt, and building a conventional investment portfolio. You should also only invest what you’d be OK losing, since for some investors that possibility becomes a reality.