Recently, the global financial market has experienced dramatic fluctuations, with both cryptocurrencies and U.S. stocks experiencing a sharp sell-off. Investors' concerns about the U.S. recession have intensified, leading to an increase in risk aversion. The price of Bitcoin once fell below $50,000, and then rebounded slightly. The extent of the market crash is still beyond the imagination of most people. After losing $60,000 at 10 pm last night, BTC fell sharply to below $50,000, with a minimum of $49,000, a 24-hour drop of more than 10% and a new low for BTC since March this year. After losing $3,000, ETH fell to a minimum of $2,111, a 24-hour drop of more than 20%, which almost wiped out all the gains in ETH this year. Altcoins generally fell around 20%. According to Coinglass data, the entire network had a 24-hour liquidation of $808 million, of which long orders had a liquidation of $705 million. The decline of US crypto stocks in the night trading session widened, among which CleanSpark fell by more than 20%, MicroStrategy and Marathon Digital fell by more than 16%, and Coinbase and Riot Platforms fell by more than 13%. We believe that this decline is mainly caused by a combination of factors. Finding the reasons for the market decline will help us grasp the market outlook.
1. US macroeconomic data triggers market panic
The U.S. Department of Labor released data on the 2nd local time, showing that the U.S. unemployment rate rose by 0.2 percentage points month-on-month to 4.3% in July this year, the highest since October 2021. The number of new jobs in the U.S. non-agricultural sector in July was 114,000, far below market expectations and lower than the 179,000 in June. This data shows that the U.S. labor market is cooling down, making investors worried about the economic outlook. As an important indicator of the health of the U.S. economy, the unexpected performance of non-agricultural data has caused shocks in the financial market. The U.S. unemployment rate has soared by 0.6% from its low point this year. After the unemployment rate has continued to surge beyond expectations for several months, it has finally triggered the "Sam's Rule" based on the unemployment rate to predict a recession. It is reported that Sam's Rule is an indicator that predicts a recession. It believes that once the three-month moving average of the unemployment rate is 0.5 percentage points higher than the low point of the past year, it means that a recession has begun. The accuracy of this rule has been 100% since the 1970s. After the release of the unemployment rate data in July, it has hit the threshold of 0.5%, which means that the United States may have entered a recession. Since 1950, among the 11 signals sent by the Sam recession indicator, only the recession in 1960 occurred 5 months later. The United States was already in recession when the other 10 signals appeared. In the report, Jan Hatzius, chief economist of Goldman Sachs, raised the probability of the United States falling into recession in the next year from 15% to 25%. Goldman Sachs expects the Federal Reserve to cut interest rates by 25 basis points in September, November and December. In addition, Goldman Sachs said that if its forecast is wrong and the August employment report is as weak as July, then a 50 basis point rate cut in September is very likely. In contrast, JPMorgan Chase and Citi have adjusted their forecasts and expect the Federal Reserve to cut interest rates by 50 basis points in September.
Wasif Latif, President and Chief Investment Officer of Sarmaya Partners, commented on the July U.S. non-farm payrolls. This is what a growth scare looks like. The market now realizes that the economy is indeed slowing down. The unemployment rate is an autocorrelation function number, so once it starts moving in a certain direction, it usually continues to move in that direction. I think the market also quickly realized that it might be a mistake for the Fed not to cut interest rates. Historically, the Fed has tended to wait longer and eventually push the economy into a slower growth zone. Obviously, they rely on the data, and now that the data is out, they may do what they need to do in September, but September is a bit far for the market, and the market is currently in a panic. In this environment, bond prices are expected to rise due to factors such as a slowing economy and investors turning to high-quality assets. In addition, Melissa Brown, Managing Director of Simcorp Applied Research, said that the actual non-farm data was a bit shocking compared to expectations. It was much lower than expected, but it was a positive number. This is not the lowest level it has ever seen. Job growth may be low enough to trigger the Fed to take action at the next meeting, but it is not low enough to show signs of recession. Unemployment claims were higher than expected and higher than they have been for some time. That is a bit concerning but still relatively low. There is still a lot of data to come between now and the next meeting. A 50 basis point rate cut is possible but unlikely given the Fed's cautious approach. That will depend on the data in the coming weeks. Hourly earnings were a little lower, which means the next inflation report will be very important as it reflects overall inflation versus income growth.
On the other hand, the ISM manufacturing PMI in the United States was 46.8 in July, down from 48.5 in June, the lowest level since November 2023. This data further exacerbated market concerns about a recession. After the release of the above economic data, the U.S. stock market fell sharply. As of the close of the day, the S&P 500 fell 1.37%, the Dow fell 1.21%, and the Nasdaq fell 2.30%. At the same time, the yield on the 10-year U.S. Treasury bond fell 12 basis points to 3.98%, the first time it has fallen below 4% since February. The U.S. dollar index rose 0.38% to 104.351 points. Users in the market who believe in the recession story will choose to sell their assets because they are unwilling to bet on whether a recession will really happen. The funds in the crypto market are negatively affected after being withdrawn.
2. Global stock markets have experienced a sharp decline
The day after the Fed's interest rate meeting, U.S. stocks began to plummet. The most direct cause was that the ISM manufacturing data for July released on August 1 was only 46.8%, lower than the market's previous expectations. The index reflects the factory activity in the United States and is generally considered to be a signal of economic recession. Subsequently, the non-farm payrolls data released on Friday continued to increase investors' concerns. The July data showed that the U.S. unemployment rate rose to 4.3%, the highest level since 2021. Combined with the number of first-time unemployment claims in the week announced the day before, which hit the highest level since August 2023, it shows that the U.S. job market has begun to show signs of a significant slowdown. U.S. stock futures fell collectively, with Nasdaq 100 futures falling 2.21% and S&P 500 futures falling 1.23%. Today, Asian markets were also affected by U.S. stocks and began to fall. The Japanese stock market plummeted, with the Nikkei 225 index falling 6%, and a cumulative drop of more than 12% in three days. The decline of the Topix Index triggered the circuit breaker mechanism. It has fallen 20% from its high in July and is about to enter a technical bear market. Banks, financial and mining stocks led the decline. South Korea's KOSPI index fell 5%, and Samsung's stock price fell 6%, the biggest drop since 2020. Singapore's Straits Times Index fell 3%, Australia's S&P 200 fell 3%, and the Philippine stock index fell 2%.
3. Impact of bankruptcy reorganization and increased supply of Hong Kong institutions
On August 3, according to The Block, cryptocurrency lender Genesis Global and its related companies announced the completion of bankruptcy reorganization and began distributing digital assets and US dollars worth about $4 billion to repay creditors. On average, Genesis creditors will recover 64% of the physical cryptocurrency repayments. Bitcoin creditors will recover 51.28% of Bitcoin, Ethereum creditors will recover 65.87%, and Solana creditors will recover 29.58%. This event has led to an increase in market supply, further exacerbating the downward pressure on the market. In addition to Genesis' bankruptcy reorganization, the US government also released about 28,000 Bitcoins, while the Mt Gox settlement agreement distributed 33,960 Bitcoins. These factors have jointly exerted huge downward pressure on the market. Recently, the difficulty of Bitcoin mining has risen by 10.5%, reaching an all-time high. This has put additional pressure on miners, forcing them to liquidate their holdings, further increasing the market's selling pressure and upward resistance.
On June 20, there were rumors in the market that Jump Trading was being investigated by the U.S. Commodity Futures Trading Commission (CFTC). Just four days later, Kanav Kariya, president of Jump Crypto, announced on his social platform that he would resign today, without explicitly mentioning the reason for his resignation. Recently, Jump Trading redeemed a sum of $410 million worth of wstETH (120,000 pieces) in batches into ETH and then transferred it to trading platforms such as Binance/OKX. In the past 24 hours, Jump Trading has transferred another 17,576 ETH (about $46.78 million) to CEX. According to Scopescan monitoring, Jump's positions are currently dominated by USDC and USDT. Arthur Hayes, co-founder of BitMEX, just posted on social media that he learned through news channels in the traditional financial field that a "big guy" fell and sold all his crypto assets. And this so-called "big guy" is most likely Jump Trading.
In addition, after the market continued to fall due to severe selling pressure, there were multiple large liquidations and on-chain liquidation events today. In the morning, 4 whales were forced to liquidate a total of 14,653 ETH, worth approximately $33.54 million, due to the rapid decline in the market. According to Parsec data, the lending liquidation volume on DeFi exceeded $320 million in the past 24 hours, setting a new high for the year. Centralized exchanges also broke out large liquidations. A Binance user had a single long order liquidation of $10.9074 million at 10:17 today when the Ethereum price was $2,197. The contract trading pair was ETH/USDC. While the market continued to liquidate leverage, it also increased selling pressure, causing the crypto market to fall sharply.
4. Future market prospects and investment strategies
Despite the recent market sell-off, industry analysts agree that the outlook for the cryptocurrency market remains positive. John Haar, managing director of Swan Bitcoin, said that both gold and Bitcoin are monetary assets with limited supply and react similarly to macroeconomic events and trends. He believes that Bitcoin has greater potential as a store of value, and the market capitalization of gold and Bitcoin may be equal in the next 5-10 years. Haar pointed out that although there may be factors that affect the price of Bitcoin or gold in the short term, in the long run, Bitcoin has greater price appreciation potential than gold. As more investors realize Bitcoin's status as a digital hard currency and a wealth preservation tool, institutional demand for Bitcoin will increase.
5. Investment strategy recommendations
Regarding the current market situation, we think it is similar to the 312 market situation in 2020, both of which are caused by the selling pressure brought about by the market panic caused by the recession. Therefore, we suggest that the following strategies can be adopted:
Diversify your investment portfolio: In the current market environment, investors should adopt a diversified investment strategy to reduce the risk exposure of a single asset. Allocate assets to gold, Bitcoin and other safe-haven assets to hedge against the risk of market volatility.
Pay attention to macroeconomic data: Pay close attention to macroeconomic indicators such as the US non-farm payrolls, unemployment rate and manufacturing PMI. These data will have an important impact on market sentiment and asset prices.
Long-term holding strategy: Investors who are optimistic about the long-term prospects of Bitcoin can adopt a long-term holding strategy, ignore short-term market fluctuations, and focus on the long-term appreciation potential of Bitcoin.
Utilize technical analysis: Use technical analysis tools, such as the relative strength index (RSI) and moving averages (EMA), to identify market trends and opportunities to buy. After the recent market decline, technical analysis can help investors identify suitable buying points.
Allocation of safe-haven assets: In the current market where risk aversion is rising, increase allocation to safe-haven assets such as gold and government bonds to balance the risk of the investment portfolio.
The recent sharp fluctuations in the cryptocurrency market and the U.S. stock market are mainly affected by the cooling of the U.S. job market, the shrinking manufacturing industry, and investors' concerns about economic recession. At the same time, bankruptcy and reorganization events in the cryptocurrency field and the increase in supply have also exacerbated the downward pressure on the market. Although the market faces great uncertainty in the short term, in the long run, the prospects of the cryptocurrency market, especially Bitcoin, remain promising. Investors should adopt strategies such as diversified investment, long-term holding and technical analysis to cope with market fluctuations and plan for future market opportunities.
