There has been a notable decline in the market capitalization of cryptocurrencies, with a dip of more than 1.5% to over $2.03 trillion. Many market players are now asking what the fundamental causes of this fall are and how long this negative trend may last.
Photo: CoinMarketCap
The US equity market’s weakness was reflected in the crypto market’s sell-off, as major indexes such as the S&P 500, Dow Jones, and Nasdaq Composite all saw substantial falls. Over the course of a day, the price of the most popular cryptocurrency, Bitcoin, fell 1.6%, while Ethereum suffered a more significant decline of 3.4%.
Weak manufacturing data seems to be one of the main causes of the current market collapse. According to the Institute for Supply Management’s survey, US manufacturing shrank for a fifth straight month in August, with the PMI index falling short of forecasts. According to these statistics, the US supply market is not as strong as expected, which has raised hopes that the Federal Reserve may lower interest rates at its next FOMC meeting.
Deals and Market Organization
Accelerated long liquidations in futures markets accompanied the recent decline in the cryptocurrency market. According to CoinGlass data, within a 24-hour period, long traders who were banking on the market’s upside saw liquidations totaling $65.08 million, while short traders saw liquidations totaling over $35.24 million.
Photo: CoinGlass
These liquidations have lowered the worth of the whole cryptocurrency market and boosted selling pressure, especially in Ethereum and Bitcoin holdings. A decline in active futures contracts is also indicated by a decline in OI, suggesting that some traders are exiting the market and closing their holdings.
The majority of popular currencies, such as Bitcoin and Ethereum, continue to have positive financing rates in spite of these gloomy indications. Given that they are prepared to pay more to hold onto their long holdings, it appears that traders who are still actively participating in the market have a generally positive attitude.
Technically speaking, the drops in the cryptocurrency market seem to be a part of a correction inside the dominant pattern of a falling parallel channel. The total crypto market capitalization has dropped 27% since turning down from its March high, losing crucial support levels along the way.
The Bear Trap Theory
While some may view the present state of the market as dire, others believe it might be a bear trap leading up to a big upward rise. The anonymous crypto analyst TechDev, who has amassed a sizable social media following, is one advocate of this notion.
pic.twitter.com/ztH8TVw3f4
— TechDev (@TechDev_52) September 1, 2024
According to TechDev’s research, the next leg up in the market cycle is expected to come before Bitcoin and the larger digital asset market emerges from their present enormous bear trap. His graphic shows that the market cycles for Bitcoin go through several stages, starting with “accumulation” and concluding with a bull trap.
According to the analyst, Bitcoin is presently in the “bear trap” stage in its cycle. This phase, he contends, precedes periods of “euphoria,” “FOMO,” and “renewed optimism” before the market peaks out and goes into a bull trap.
TechDev uses the dominance of USDT in the cryptocurrency markets—which he views as negative for stablecoins—to bolster his optimistic view. This suggests that stablecoins might soon be exchanged for other digital assets in large quantities, which could raise prices throughout the cryptocurrency market.
Comparing the Past and Making Long-Term Forecasts
TechDev compares the historical price activity of Bitcoin to that of the Nikkei 225, the main index of the Japanese stock market. The expert has made some audacious long-term predictions for the price of Bitcoin based on these comparisons.
According to TechDev’s charts, Bitcoin may increase to $760,000 at some point between 2028 and 2029. But he also believes that a multi-year bear market, such as what the Nikkei went through in the 1990s, will come after this top.
Haven't seen much else like it.
Log growth cycles have existed well before #Bitcoin.
Different assets. Different decades. Same species.
Without looking at time or price, most would think the first half of the Nikkei's chart is Bitcoin's.
It must have had a halving every 10… pic.twitter.com/EivJEiZRhl
— TechDev (@TechDev_52) August 16, 2024
If past trends hold true, these long-term forecasts, which should be regarded with a grain of salt, indicate the possibility of substantial development in the cryptocurrency industry in the upcoming years.
Market Mood and Their Cyclical Character
TechDev’s comprehension of market cycles and mood is the foundation of his upbeat assessment of the most recent market slump. He points out that strong rising swings in the market frequently precede moments of intense panic.
The expert notes that the previous two weeks have been characterized by a pessimistic outlook and a lot of dire forecasts. But he sees this as a good thing, saying that speculative markets, especially in the cryptocurrency realm, usually don’t move upward until a sizable percentage of players are terrified half to death.
Similar times of anxiety and pessimism have been documented by TechDev at several stages in Bitcoin’s history, including $15,000 after the FTX crisis, $20,000 amid local bank failures, and $38,000 after the ETF price spike. The market subsequently recovered and climbed higher in each of these instances.
As in the past, the analyst anticipates a sharp shift in attitude in the upcoming weeks. He insists that despite momentary oscillations and market anxiety, the global cycle is still trending upward.
Macroeconomic Elements and Their Repercussions
When evaluating the present state of affairs, it is important to consider the interaction between cryptocurrency markets and more general macroeconomic issues. The poor manufacturing statistics and how it affects the traditional and cryptocurrency markets demonstrate how these asset classes are becoming more and more correlated.
The market is further complicated by the possibility of rate reduction by the Federal Reserve in reaction to economic data. In an effort to find greater returns, more investors may turn to riskier assets like cryptocurrencies as a result of lower interest rates.
It’s crucial to remember that there are often complexities in the interaction between monetary policy and cryptocurrency markets. Although, traditionally, bull runs in risk assets, including cryptocurrencies, have been linked to lax monetary policy, other important aspects to consider are developments in regulations, technical improvements, and market sentiment.
The Significance of the Next Employment Report
An important data point that might have a big impact on the conventional and cryptocurrency markets is the August payroll report, which is coming up soon. According to consensus estimates, job growth will accelerate to 160,000 in August, while the unemployment rate will decline to 4.2%.
The expectations around the Federal Reserve’s upcoming actions will be greatly influenced by this report. Positive employment data would temper rate-cutting predictions, which might put short-term pressure on risky assets like cryptocurrencies. On the other hand, a lower-than-expected report would raise hopes for monetary easing, which might strengthen the cryptocurrency markets.
The Broader Picture: Innovation and Adoption
It’s important to take into account the bigger picture of technological progress and acceptance in the blockchain and cryptocurrency industries, even if conversations in the crypto industry are frequently dominated by short-term price fluctuations and market sentiment.
NFTs, layer-2 scaling solutions, and DeFi are just a few of the fields seeing significant progress despite market swings. Whatever the short-term fluctuations in price, these technologies have the potential to generate long-term value in the cryptocurrency ecosystem.
Furthermore, big financial institutions and organizations are increasingly looking for methods to incorporate blockchain and digital assets into their operations, contributing to the growing institutional acceptance of cryptocurrencies. A strong basis for future expansion may be provided by the increasing adoption of cryptocurrencies and their inclusion into the mainstream financial system.
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