Written by: BitpushNews Mary Liu
"Black Monday" reappears, and global asset markets are experiencing a waterfall-like washout.
As the Bank of Japan unexpectedly raised interest rates last week and talk of a U.S. recession grew, a piece of news over the weekend further dampened market sentiment: Berkshire Hathaway Inc. reduced its stake in Apple by nearly 50%.
Market data showed that Japan, South Korea and Turkey triggered the circuit breaker mechanism, and the two-year U.S. Treasury yield fluctuated by 30 basis points, temporarily ending the inversion with the two-year yield.
The seven largest U.S. stock markets lost $1.3 trillion in market value at the opening on Monday, with the Nasdaq closing down 3.4% and the S&P 500 down 3%, the worst day in nearly two years. The Dow Jones Industrial Average fell 1,033 points, or 2.6%. Gold, a safe-haven asset, also fell nearly $100 from its intraday high.
In the crypto market, BTC once fell below the important support level of $50,000, retreating to an intraday low of $49,053, a drop of more than 16%. At the same time, mainstream currencies such as Ethereum and Solana fell by more than 30% in seven days. As of press time, Bitcoin is trading at $54,168, and its 24-hour decline has narrowed to 7%.
Amid a massive sell-off in global markets, altcoins were hit hard, with only five of the top 200 tokens by market cap rising more than 1% on Monday. FTX Token (FTT) was the biggest gainer, up 4.6%, Galxe (GXE) up 3.2%, and SATS (1000SATS) up 3%. Popcat (POPCAT) was the biggest loser, down 27.8%, followed by SKALE (SKL) down 25%, and Mog Coin (MOG) down 23.5%.
The number of liquidations has surged. According to Coinglass data, the 24-hour liquidation data in the crypto market once reached US$1.2 billion, which is one of the largest liquidations since early March this year. Long positions and short positions reached US$922 million and US$183 million respectively.
These events highlight the fragility and interconnectedness of global financial markets. Bitfinex analysts said: "Policy shifts and economic indicators drive rapid changes in investor sentiment and market dynamics. Economic and political developments have a significant impact on all markets, not just cryptocurrencies."
Economists call for emergency rate cuts; Goldman Sachs raises recession odds to 25%
CoinShares noted in a report published on August 5 that the latest crypto sell-off is believed to be a reaction to concerns about a U.S. recession, geopolitical uncertainty, and the resulting liquidation of most asset markets.
CoinShares' latest digital asset fund weekly report shows that digital asset investment products saw their first outflow in four weeks, totaling $528 million, from July 28 to August 3. Among them, the U.S. Bitcoin exchange-traded fund (ETF) suffered its largest outflow in about three months on August 2. The question is whether these products will attract bargain hunters when they resume trading, or whether there will be deeper outflows.
After the Fed released worse-than-expected nonfarm payrolls data last Friday, the U.S. economy appears to have entered a "technical recession" according to the "Sam Rule" metric. When the Fed began to raise interest rates sharply in March 2022, it made it clear that it was indeed "walking a tightrope": raising interest rates too aggressively would stifle the economy, and raising interest rates insufficiently would lead to worsening inflation, which would have a negative impact on all consumers.
On Sunday, Goldman Sachs economists raised the chance of a U.S. recession in the coming year to 25% from 15%, but argued that the economy continued to be "generally sound," there were no major financial imbalances and the Federal Reserve had plenty of room to cut interest rates and could act quickly if needed.
A Bloomberg report noted that early Monday, swap markets were pricing in a 60% chance that the Federal Reserve would make an emergency 25 basis point rate cut in the coming week to prevent a recession.
Tracy Chen, portfolio manager at Brandywine Global Investment Management, told Bloomberg: "The market is worried that the Fed's policy is too lagging and the economy is turning from a soft landing to a hard landing. U.S. Treasuries are a good buy because I do think the economy will continue to slow."
Nobel Prize-winning economist Paul Krugman also called on the Fed to urgently cut rates after the panic sell-off in stocks. He wrote on X Platform: "The Fed has been criticized for delaying rate hikes when inflation was rising. But its passive attitude when inflation was falling lasted longer and may have caused more harm."
Claudia Sahm, the creator of the Sahm Rule and a former Federal Reserve economist, said the United States is "uncomfortably close to a recession" and she expects Fed policymakers may readjust their approach to take into account the growing risks.
However, Sahm warned that as financial markets plunged, the "scary word" became more likely in the eyes of many people, and it would not be appropriate for the Fed to take immediate action to respond to the increased risks. "It is important to remain calm at a time like this."
“The Fed could press on and slash rates to save the day, but the rationale for inter-meeting rate cuts seems weak,” said Brian Jacobsen, chief economist at Annex Wealth Management. “These rate cuts are typically taken in response to emergencies like COVID, and 4.3% unemployment doesn’t seem like much of an emergency.”
Have the floodgates to a bigger bull market been opened?
Although the drop was not as severe this time, the speed at which BTC fell was reminiscent of the 2020 coronavirus-induced crash, when BTC plummeted 57% in six days in mid-March.
“Given that much of the current selling is forced and outright panic, cryptocurrencies are expected to recover relatively quickly, ironically opening the floodgates for a bigger bull run,” said Daniel Cheung, co-founder of digital asset venture capital firm Syncracy Capital.
Matt Hougan, chief investment officer at asset management firm Bitwise, also compared this weekend’s crash to March 2020 in a market update, saying: “Sentiment aside, history suggests this weekend’s sell-off is a buying opportunity.”
Bernstein analysts said the sharp sell-off in the Bitcoin and cryptocurrency markets was not surprising as it is a common phenomenon during times of heightened economic uncertainty.
“Bitcoin’s initial reaction as a ‘safe haven’ asset was not surprising,” Bernstein analysts Gautam Chhugani, Mahika Sapra and Sanskar Chindalia wrote in a note to clients on Monday. “This is typically the pattern in the Bitcoin market (also seen during the March 2020 flash crash), and especially since it is the only market trading on weekends, we remain calm.”
The analysts added: “We do not see any incremental negative impact on cryptocurrencies. If interest rate cuts and monetary liquidity are the norm in response to U.S. recession fears, we expect prices of ‘hard assets’ such as Bitcoin (digital gold) to rise again.”
While the current situation could be a good long-term entry point, short-term risks remain.
“While Bitcoin has been in a gradual downward trend marked by three tops and two bottoms, we expect the $55,000 support line to be breached, potentially pushing prices down to $42,000,” 10x Research CEO Markus Thielen wrote in his latest market update on Aug. 5. “While this may seem extreme, the economic weakness shown in the ISM report, continued weak market structure, on-chain data, and our cyclical analysis suggest further pressures lie ahead.”
