The crypto market had a bad start in September this year! The total market value plummeted by nearly $20 billion in the past 24 hours to $2.03 trillion. Bitcoin was under huge selling pressure and fell to $57,270, a new low since mid-August!
Market sentiment is bearish, and traders are keeping a close eye on the $55,724 support level! If Bitcoin falls below this level, it may slide further to around $49,000!
Investors turn to stablecoins
September has historically been a challenging month for Bitcoin - the month is usually marked by consolidation or declines, with prices losing an average of 5-10% over the years. This year is no exception, and it seems to be continuing this tragic trend!
After Bitcoin broke through $65,000, the price continued to fall, and investors turned their funds to stablecoins, showing cautious sentiment. This shift weakened confidence in Bitcoin and other cryptocurrencies, and the market value of stablecoins soared to a record $170 billion!
Mt. Gox and the US Government’s Massive Selloff
Another threat to the market's decline: The U.S. government holds 203,000 bitcoins, worth about $12.1 billion, which could trigger a massive sell-off. At the same time, Mt. Gox plans to release 46,000 bitcoins to creditors, worth more than $2.7 billion. Together, these two could inject more than $14.8 billion in bitcoins into the market, further depressing bitcoin prices!
Decreased on-chain activity
Analysts warn: A sharp drop in on-chain activity in exchanges indicates that trading enthusiasm for Bitcoin and other cryptocurrencies is decreasing. Recently, Bitcoin has fallen deeper each time and recovered more weakly. Data from August suggests that Bitcoin may face a critical turning point in September and demand may fall further!
Hope for recovery
Despite the challenges, there is hope for a market rebound! If the Federal Reserve cuts interest rates on September 18, it could boost Bitcoin and other cryptocurrencies, experts say.
The FedWatch Tool shows that there is a 30% chance of a 50 basis point rate cut, which could trigger a Bitcoin rally. If Bitcoin successfully breaks through the moving average, the price is expected to rise back to $65,000 and could even hit $70,000.
But the current focus is on holding the key support levels. If Bitcoin falls below these levels, it may slide further, with the next support at $54,000.
Despite the rising expectations of a rate cut in September, the cryptocurrency market remains sluggish. Bitcoin fell below $58,000 yesterday, and after a brief rebound, it plunged again after six this morning, hitting a low of $57,116. It rebounded slightly to $57,458 before the post, and fell more than 2.36% in the past 24 hours, hitting a two-week low!
Fed Chairman Powell hinted at the possibility of a rate cut, which usually means lower borrowing costs, which could stimulate economic activity and investment. For Bitcoin, a rate cut has the potential to reduce funding costs and increase market liquidity, thereby driving up prices.
However, this is not absolute, as Bitcoin prices are affected by a variety of factors, including market sentiment, supply and demand, and other macroeconomic factors.
Historical data shows that interest rate cuts do not always immediately drive up Bitcoin prices. For example, when the Federal Reserve cut interest rates in 2019, Bitcoin prices began to rise before the rate cut news, but fell back after the rate cut.
In 2020, when the Federal Reserve slashed interest rates in response to the epidemic, the price of Bitcoin did not surge immediately, but rose significantly at the end of the year. This shows that although interest rate cuts can create favorable conditions for Bitcoin, the market reaction may be delayed and affected by other factors.
In addition, crypto market sentiment and capital inflows are also key factors affecting Bitcoin prices. For example, inflows into spot Bitcoin ETFs may drive prices higher. If ETF inflows pick up and market sentiment turns bullish, Bitcoin prices may benefit.
Although the U.S. presidential election may affect market sentiment and policy expectations, its direct impact on Bitcoin prices may be limited. The cryptocurrency market is more driven by global macroeconomic policies and regulatory environments than by a single event.
Interest rate cuts are a positive factor for Bitcoin price increases
Historical data shows that the Fed's interest rate cuts often drive up Bitcoin prices. The reason is simple: interest rate cuts reduce the cost of capital, which encourages investors to invest their funds in high-risk, high-yield assets such as Bitcoin.
Therefore, the positive factors of interest rate cuts for Bitcoin mainly include:
The impact of interest rate cuts on Bitcoin is profound. First, when interest rates fall, the returns on traditional low-risk investments such as savings accounts or bonds decrease, and investors tend to seek opportunities for higher returns. At this time, high-risk assets such as Bitcoin become more attractive due to their potential high returns, which may drive up Bitcoin prices.
Secondly, interest rate cuts are usually intended to stimulate economic growth, which brings positive market sentiment. When the economic outlook is good, investors are willing to increase their investments, including cryptocurrencies such as Bitcoin. The optimistic market atmosphere may trigger more capital inflows, pushing up Bitcoin prices.
In addition, rate cuts reduce the yields of traditional safe-haven assets such as government bonds, while potentially exacerbating inflation concerns. Bitcoin, due to its limited supply, is an ideal choice for hedging against inflation. When investors worry about currency devaluation, they may turn to Bitcoin, which could push up its price.
Finally, interest rate cuts usually increase market liquidity and make funds more abundant. When funds are flooded, investors can more easily obtain funds to invest in the Bitcoin market, which may drive up Bitcoin prices.
Historical Cases of the Federal Reserve Influencing Bitcoin Prices
Looking back at history, Bitcoin prices have not always reacted consistently to the Fed’s rate cuts. From the end of 2018 to mid-2019, Bitcoin soared from $3,000 to $13,000. Although the Fed began to cut interest rates in July 2019, the market had already responded to this policy in April.
However, from July 2019 to March 2020, even though the Fed cut interest rates, the price of Bitcoin still experienced dramatic fluctuations, initially falling from $13,000 to $7,000, a drop of more than 30%. This shows that there are differences in the market's interpretation of the interest rate cut, and the interest rate cut did not immediately bring the expected positive effects.
In March 2020, the global epidemic hit the economy, and the Federal Reserve quickly adopted interest rate cuts and quantitative easing policies. After the market adjusted, it ushered in a big rise from the end of 2020 to the beginning of 2021, and the price of Bitcoin soared from US$3,000 to US$65,000.
However, from March 2022 to July 2023, the Fed started its interest rate hike cycle, and the price of Bitcoin fell from $45,000 to $15,000, a nine-month decline. This period showed the market's sensitivity to interest rate hikes, and expectations of interest rate cuts failed to emerge before prices rebounded.
Overall, historical data shows that interest rate cuts are mostly beneficial to Bitcoin prices, but market reactions can sometimes lag or short-term selling pressure may occur, leading to price fluctuations. This pattern of falling first and then rising occurs from time to time.
Interest rate cuts are a positive factor for Bitcoin price increases
Historical data shows that the Fed's interest rate cuts tend to drive up Bitcoin prices. The reason is not difficult to understand: interest rate cuts reduce the cost of funds, encouraging investors to turn their funds to high-risk, high-yield assets such as Bitcoin, thereby pushing up its price.
The positive factors of interest rate cuts for Bitcoin are mainly reflected in the following aspects:
Stimulate investment: In a low-interest rate environment, investors seek higher returns, driving funds into Bitcoin, thereby driving up its price.
Improve market sentiment: The interest rate cut is aimed at stimulating economic growth, releasing positive signals from the Federal Reserve, and enhancing market confidence. Investors are more willing to take risks, prompting more funds to flow into the Bitcoin market.
Improved anti-inflation properties: Interest rate cuts may reduce the yields of traditional safe-haven assets, triggering higher inflation expectations, making Bitcoin's anti-inflation properties as digital gold more prominent. Many investors see Bitcoin as a tool to fight inflation, driving up demand and prices.
Increased market liquidity: The loose monetary policy brought about by the interest rate cut increases market liquidity, making it easier for investors to enter the market and further driving up the price of Bitcoin.
Looking at recent weekend funding activity, three exciting trends are emerging:
The current blockchain and cryptocurrency industry shows several striking trends:
The DeFi sector is booming: decentralized exchange projects continue to attract much attention, and the market's enthusiasm for this innovative field continues to rise.
Bitcoin ecosystem expansion: The scope of Bitcoin applications continues to expand, from simple transactions to various innovative applications, showing huge potential and possibilities.
The rise of Web3 games: Web3 games are attracting more and more attention from investors and are expected to become the next breakthrough in the field of blockchain applications.
These trends show that despite frequent market fluctuations, the pace of innovation in blockchain and cryptocurrency has never stopped. In the long run, the industry outlook is still promising and the future is exciting!
There is selling pressure on Bitcoin
Although a rate cut is usually seen as positive, if it is due to signs of a recession, the market may become more pessimistic. At this time, investors may prefer safe-haven assets rather than Bitcoin. Although Bitcoin is hailed as "digital gold", traditional safe-haven assets such as gold may be more popular during a recession, resulting in less demand for Bitcoin. In addition, regulatory uncertainty and sudden black swan events may also affect the effect of rate cuts and trigger market selling pressure.
US August non-farm payrolls data
The Federal Reserve will release August non-farm payrolls data on the evening of September 6. This key report will be the key basis for the September FOMC meeting and the final report card on the labor market before the meeting. Chairman Powell mentioned at the central bank's annual meeting in August that if this data meets expectations, the Federal Reserve may start cutting interest rates from September.
If the data shows that the job market continues to slow, it will not only help ease the pressure on rising prices, but also may provide strong support for the Federal Reserve to cut interest rates.
Meanwhile, the Bank of Canada will also announce its interest rate decision this week, and it is expected that they will most likely cut interest rates for the third time in a row. In July, the Bank of Canada has already implemented its second consecutive interest rate cut, while employment data showed that the number of unemployed people increased compared to June, and more importantly, the inflation rate continued to decline. All this increases the possibility of further interest rate cuts by the Bank of Canada.
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