On Monday, the global capital market plummeted, marking Black Monday. The Japanese stock market fell 12.4%, triggering a circuit breaker; the South Korean stock market plummeted 8.77%. Market sentiment was in a state of panic. The crypto market continued to plummet after the weekend's sharp drop, with Bitcoin falling below $50,000 and Ethereum falling to the $2,000 mark. A large amount of leveraged funds were liquidated, and blood flowed like a river. What caused this?

The crypto market is full of hype and has no internal driving force because there is no large-scale ecological narrative. As the high diluted market value (FDV) of the altcoins incubated by VC institutions continues to be unblocked and cashed out, the market is under great pressure of capital outflow. The rise of the crypto market is more driven by the emotions and leverage brought by ETF funds. The influence of the external macro environment determines the trend of the crypto market.

The most important external factor is whether the US economy will fall into recession, which determines the monetary policy of the Federal Reserve and the driving force of ETF funds. The global capital market, including the crypto market, is in a bloodbath. The core reason is that the market is worried that the US economy is beginning to enter a recession, and the negative impact of the recession will overwhelm all the positive impacts. Even the faster the interest rate is cut, the faster the market will collapse.

Over the past year, the Federal Reserve has maintained high interest rates, based on the good performance of the US economy, and the core indicator is the unemployment rate data. The unemployment rate announced last Friday showed that the US unemployment rate in July increased by 0.2 percentage points month-on-month to 4.3%, the highest since October 2021. The number of new jobs in the US non-agricultural sector in July was 114,000, far below market expectations and lower than the 179,000 figure in June.

The unemployment rate data was significantly weaker than market expectations, and the global capital market quickly shifted from trading the Fed's interest rate cut expectations to trading the economic recession expectations, which was the fuse for this decline. In the past two years, the Fed has raised interest rates and reduced its balance sheet, but the U.S. stock market and the crypto market have both risen, and even hit record highs.

Source of funds: Attracted by high interest rates, global funds flowed into the United States with the help of arbitrage markets such as the "yen-dollar"; Core narrative: The crypto market is ETFs, and the US stock market is driven by AI technology stocks. Strangely enough, several major negative factors appeared almost simultaneously on the weekend and influenced each other, triggered by the unemployment rate as a fuse.

After March, there was no more massive inflow of funds into ETFs. They sold when the market was rising and bought when it was falling. After the Ethereum ETF was approved, the inflow of funds was "very average". The earnings reports of US technology stocks were released. Although they were still good overall, the market believed that they were weak and US stocks could not rise. The Japanese yen began to raise interest rates, while the US dollar was about to cut interest rates, which compressed the arbitrage market and liquidity began to tighten. At this time, the situation in the Middle East escalated sharply again. This led to Black Monday.

What do you think of the market outlook? Because the negative impact of the economic recession is too great, after the market plummeted, investors did not rush to buy at the bottom, but were more on the sidelines.

However, the market is worried about the economic recession, but it has not really declined yet, so the market crash is more of an emotional catharsis. Whether it will form a sustained downward trend remains to be seen. However, one thing should be certain. Before the Fed floods the market with money again, the bull market is definitely gone. The market is full of high-market-cap altcoins. Before their bubble is squeezed, differentiation is still the main theme. Bitcoin will not fall much, but it will take a long time for altcoins to adjust. From the time window, there will be no trend opportunities in the next year at least. Even at the bottom of the bear market, there is plenty of time to invest and find high-quality projects.