On the Chain: Bitcoin’s US$81,000 breakout fizzles as Fed fears return

Bitcoin has surrendered its push above US$81,000, falling back towards US$78,000 as renewed fears of higher US interest rates took some of the heat out of a powerful late-August cryptocurrency rally.

The world’s largest cryptocurrency was trading around US$78,000–US$79,000 on Monday after reaching US$81,326.81 on August 28, its highest level in three months.

Bitcoin had rallied more than 20% from around US$62,000 in little more than a week, helped by renewed institutional buying and a broader move towards alternative assets.

However, the attempt to establish itself above US$80,000 ran into resistance after Federal Reserve chair Kevin Warsh used his Jackson Hole address to reinforce the central bank's determination to bring inflation back towards its 2% target.

Warsh puts rates back in focus

Warsh's comments rapidly changed expectations for US monetary policy.

Bitcoin dipped below US$78,000 following the speech as traders increased bets that the Federal Reserve could raise interest rates at its September meeting.

The US two-year Treasury yield jumped and the dollar strengthened as markets digested Warsh's message that the Fed still had “work to do” on inflation.

Higher rates generally present a headwind for cryptocurrencies and other risk assets because they increase the returns available from cash and government bonds.