Cryptos suffer on the prospect of a tougher Fed and stronger dollar

The cryptocurrency market remains under pressure. Bitcoin (BTC) is moderately declining and is just above $26,200, while Ethereum (ETH) is unable to regain $1,600.

Digital assets continue to suffer in the face of declining risk appetite and rising bond yields. Recently, the US 10-year bond yield improved to levels not seen since 2007 and the German bund yield reached decade highs. In addition, the strength of the dollar, reinforced by new prospects of a possible further interest rate hike by the Federal Reserve (Fed), has also weighed on prices.

The latter has been weighing on cryptos since the Fed's last monetary policy meeting, held exactly one week ago. Then, Chairman Jerome Powell and his staff sent a more hawkish message than expected to the market, assuring that they were prepared to tighten their stance even further if necessary.

According to data from CME's FedWatch tool, the consensus is not buying the Fed's bluff and continues to believe that interest rates will not rise for the remainder of the year, but that has not stopped risk from waning and equities and digital assets have paid for it. In particular, the Fear & Greed Index is in the fear territory, reflecting this lack of appetite for risk, but also indicating that there are buying opportunities at current prices.

Still, some believe that interest rates could go higher, much higher. Yesterday, on Tuesday, Jamie Dimon, CEO of JP Morgan, acknowledged in an interview that the world was "not prepared" for a scenario with Fed interest rates at 7%, a scenario that he refuses to rule out and that could do more damage to the economy than the 0% to 5% hike.

It is also worth noting that spot BTC exchange-traded funds (ETFs) will not offer support for cryptos in the near term. Recently, the SEC has extended the deadline to decide on the Global X and ARK Invest ETFs, which were due for a decision or extension in early October and early November, respectively.

All of this shows that Bitcoin bulls "still can’t catch a break as we move into the end of Q3,"explained James Harte, market analyst at TickMill Group. "Following a rally over the last fortnight, BTC prices have once again turned lower, capped by local resistance. Following a solid start to the year, bullish momentum faded into April and despite a fresh push higher in July, prices have now cooled by around 20% from the YTD highs," he commented.

Harte believes that, with the Fed now focused on a "higher for longer" narrative, it seems likely that BTC will "remain hindered" until that view changes. Looking ahead to this week, we have plenty of key US data to drive action: final GDP, weekly unemployment, underlying PCE and University of Michigan consumer sentiment, along with Powell speaking tomorrow, on Thursday, as well. "Any further data strength will reinforce the current Fed narrative, weighing on risk sentiment. Additionally, If Powell is seen reaffirming the message from the FOMC last week this should keep BTC prices pressured through the end of the week," the expert stated.

On the technical side, Harte highlighted that the "massive" sell-off in BTC has seen the market "breaking through the rising trend line from YTD lows, as well as through the $27415 support level." "Price recently stalled into the $24930 support, which remains for now. With momentum studies bearish, however, risks are pointed towards a further break lower which, if seen, opens the way for a test of $21390," he added.

In other market news, altcoins are behaving similarly. The 2% steep losses of Solana (SOL) are particularly noteworthy.