Cryptocurrency prices made a strong comeback during the overnight session as investors remained hopeful about the industry and potential Federal Reserve intervention. Bitcoin surged to a high of $56,000, adding over 7,000 points from its lowest point on Monday.
Ethereum rose to $2,525, while Stellar Lumens (XLM) increased to $0.090, 20% above its Monday low. Aave climbed to a high of $104.30, 35% above its lowest level on Monday, and Ripple (XRP) soared to $0.50, 18% above Monday’s low. Other top-performing coins included Akash Network (AKT), Brett, Helium (HNT), and Ondo Finance.
Cryptocurrencies Bounce Back but Remain in Bear Market
To be clear, while these coins have bounced back, they are still in a bear market. A bear market is defined as a situation where an asset drops by at least 20% from its highest point within a certain timeframe.
Ripple’s XRP token has fallen by 22% from its highest level this month, while Stellar Lumens (XLM) is 20% lower than its month-to-date high.
Crypto Rebound: Stock Market Recovery and Economic Concerns
The recent rebound in the cryptocurrency market can be attributed to a bounce back in global stocks. In Japan, the Nikkei 225 and Topix indices rose nearly 10% after a significant drop of over 14% on Monday.
In Hong Kong, the Hang Seng index increased by 20 basis points, while the South Korean Kospi index surged by over 4%. Similarly, in India, the Nifty 50 index climbed by 0.50%. Most notably, US stock futures also saw gains, with the Dow Jones rising by 320 points and the Nasdaq 100 and Russell 2000 indices both up by more than 1%.
This recovery comes as investors reflect on recent events and buy the dip. The crash on Monday was primarily driven by two factors. First, discouraging US economic data released on Friday showed an increase in the unemployment rate to 4.3% in July, with only 114,000 jobs created. Additionally, wage growth slowed and initial jobless claims rose sharply, raising concerns about a potential US recession.
Second, the decline in assets was exacerbated by investors unwinding their Japanese carry trades. A carry trade involves borrowing money cheaply and investing in higher interest countries, with the total carry trade valued at over $20 trillion. According to a CLSA analyst, despite the market rebound, uncertainty remains about whether the Bank of Japan will raise rates again this year and whether the Federal Reserve will cut rates.
Why Stellar, AAVE, and Ripple Are Up: Fed Rate Cuts and Economic Outlook
Several factors are contributing to the rise in Stellar Lumens, AAVE, and Ripple. One key reason is that a potential US recession could actually benefit risky assets like cryptocurrencies and stocks. This is because a recession might prompt the Federal Reserve to take action, which often includes cutting interest rates.
Investors are already anticipating several rate cuts this year. ING analysts predict that the Fed will cut rates by 0.50% in September, followed by a series of 0.25% cuts later in the year. They stated:
“We can see the Fed acquiescing to some of the market worries and implementing at least one, perhaps two 50bp moves to get them on track to moving policy to a more neutral footing quickly. At the moment we are leaning in the direction of a 50bp in September followed by a series of 25bp moves.”
Jefferies analysts also believe the Fed might hold an emergency meeting in August and cut rates by either 0.25% or 0.50%, while UBS analysts are predicting 100 basis points in rate cuts. Historically, as seen in 2020, both stocks and cryptocurrencies tend to perform well when the Fed is cutting rates. Conversely, they tend to fall when the Fed raises rates, as observed in 2022.
Bitcoin’s Recovery Boosts Altcoins: Patterns, Risks, and Correlations
Another reason for the rise in Stellar Lumens, AAVE, and Ripple is Bitcoin’s recent bounce back. On Tuesday, Bitcoin climbed to $56,000 and formed two key chart patterns.
Bitcoin has created a hammer chart pattern, characterized by a long lower shadow and a small body without an upper shadow. This pattern is widely recognized as a reversal signal in the market. Additionally, Bitcoin formed a falling broadening wedge pattern, another bullish indicator. A similar pattern appeared in 2020 as the Covid-19 pandemic began, and Bitcoin’s bullish breakout will be confirmed if it rises above the 50-day moving average.
Source: X
Altcoins like AAVE, Stellar Lumens, and Ripple generally move in correlation with Bitcoin. For example, these coins reached multi-year highs in March when Bitcoin hit a record high.
However, there are significant risks with this rebound. It could be a “dead cat bounce,” where an asset briefly recovers from a decline before continuing its downward trend. This temporary recovery often occurs as some investors buy the dip. Additionally, Bitcoin remains below the 50-day and 100-day moving averages, indicating that bearish pressures are still in control.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
