Bitcoin fell about 2% to near $79,800 in Asian trading, while gold reclaimed $4,000 an ounce. Traders are heading into a Fed meeting where a hold is expected this week and a rate increase is priced for December.
Two assets often described as alternatives to the dollar moved in opposite directions on Monday morning.
Bitcoin fell about 2% over 24 hours to roughly $79,800 during Asian trading, before recovering to about $80,200 by 4:45 a.m. Eastern. On Sunday afternoon it had traded near $80,700. Ether fell to just above $2,300, from about $2,355 on Sunday.
Gold futures rose 0.55% to about $4,030 an ounce, back above $4,000 after a two-day losing streak that had taken spot gold to a three-month low.
A Fed week with a December problem
The backdrop is a Federal Reserve meeting that ends on Wednesday. Markets expect a hold: fed funds futures price roughly a 10% chance of an October increase. The weight is on what comes next. Pricing in overnight index swaps implies about a 73% chance of a quarter-point increase in December.
That is the opposite of the environment in which bitcoin usually thrives. Rising rates raise the return on cash and tend to weigh on assets that pay no yield and trade on risk appetite. CoinDesk described traders as reducing risk ahead of the meeting.
Gold's rebound came on the same morning that oil eased amid diplomacy in the Gulf. No single driver has been established for either move.
The $80,000 line
Bitcoin first broke below $80,000 on Saturday, touching about $79,150, its lowest level since mid-September and below its Oct. 15 low, the last time it had traded under $80,000. Monday's dip was the second test of that level in three days. The level sits below the roughly $81,300 that Coinbase's institutional research team estimates as the average purchase price of spot bitcoin ETF holders. When the price trades under that cost basis, the average ETF buyer is holding a loss.
Last week's flows into U.S. spot bitcoin ETFs were positive, a net $301.2 million on provisional figures, ending two weeks of withdrawals that totaled about $910 million. The detail is less reassuring. The money came early in the week, before $635.6 million left on Thursday, the largest single-day outflow since June, and another $137.9 million on Friday. BlackRock's iShares Bitcoin Trust took in about $565.7 million, more than the whole category, while every other fund combined lost about $264.5 million. Spot ether funds lost about $220.7 million. Monday's flow figures will show whether the weekend weakness carried into the funds.
Two readings
One reading is that this is positioning, not a change in direction. Traders are cutting risk before a central bank decision, and bitcoin is holding near $80,000 rather than breaking sharply lower.
The other is that the setup is worsening. A Fed expected to raise rates again in December, ETF buyers under water and inflows concentrated in one fund leave bitcoin with fewer sources of support than gold, which reclaimed its own round number on the same morning.
What to watch
Monday's ETF flows, the Fed's statement and press conference on Wednesday, Coinbase's and Strategy's results on Thursday, Friday's bitcoin and ether options expiry, and whether bitcoin can hold above its Saturday low.