As a seasoned trader with over two decades of experience in traditional finance and cryptocurrencies, I must say that the recent market events have been nothing short of intriguing. The comments from Arthur Hayes, Ran Neuner, Dr. Julian Hosp, Mike Alfred, and others hint at a perfect storm brewing in the crypto sphere.
Over the last day, I’ve noticed a steep drop in the crypto market, with Bitcoin plummeting 15% to a low of $49,000 on Binance (BTC/USDT). This is quite a departure from its peak of $70,000 just a week ago, representing a dramatic 26% fall. Ethereum (ETH) followed suit, plunging 39% from $3,400 to $2,100. The downturn wasn’t just limited to these two; it resonated throughout the altcoin market, where we saw even steeper declines.
#1 Recession Fears Cause Bitcoin Crash
As a researcher, I’ve noticed that the recent market fluctuations seem to be rooted in heightened concerns about an impending US recession. These fears were ignited by unexpectedly poor employment data released on Friday, during which the July report revealed a modest gain of just 114,000 jobs. This figure is significantly lower than the anticipated 175,000 jobs, making it the weakest job growth since the previous December and nearly reaching the lowest since the onset of the COVID-19 pandemic in March 2020.
Charles Edwards from Capriole Investments stated via X, “Whenever the unemployment rate rises, as it has now, a recession follows. It appears that, similar to their delay in tightening monetary policy in 2021, the Fed may have been slow to loosen it in 2024.”
As a researcher, I found it noteworthy that my observation of the market’s unease was amplified upon learning about Warren Buffett’s Berkshire Hathaway reducing its Apple holdings by half. This move from such a closely monitored investor was perceived as an attempt to mitigate potential market declines, given Berkshire Hathaway’s recent disclosure of holding an unprecedented $277 billion in cash, as reported in their Q2 statement.
As a researcher, I’ve noticed that the Bank of Japan’s recent decision to increase its key interest rate from approximately 0.1% to 0.25% has carried substantial repercussions. This is the second time since 2007 that such a rate hike has occurred, and it has sent ripples through financial sectors across the globe. Historically, similar moves by the Japanese central bank have often been harbingers of global recessions. In response to this news, the Nikkei index witnessed its most significant two-day drop ever, surpassing even the declines seen on Black Monday in 1987.
In simpler terms, Nick Timiraos, known as the Fed’s spokesperson and a Wall Street Journal reporter, shared that Goldman Sachs believes the increasing unemployment rate in the July jobs report might not be as concerning as usual due to certain reasons. However, they increased their chances of predicting a recession from 15% to 25%.
Goldman Sachs has revised its predictions regarding the Federal Reserve’s actions, suggesting that they may lower interest rates at every forthcoming meeting. If the August employment data shows similar weakness to July’s, there could be a more assertive reduction of 0.5 percentage points in those rates.
#2 Yen Carry Trade Unwind
The slide in the market was worsened by a notable shift in the foreign exchange markets, particularly concerning the Japanese yen. Following the Bank of Japan’s increase in its main interest rate, the yen experienced a substantial strengthening against the U.S. dollar. This action put pressure on traders who had taken part in the “yen carry trade”, which involves borrowing yen at low rates to buy higher-yielding American assets.
Adam Khoo pointed out that the significant increase in the Japanese Yen (JPY) against the U.S. Dollar (USD) is triggering a massive reversal of yen carry trade positions, which is contributing to the steep drop in U.S. stocks. This shift in trades might not only influence forex and stock markets but also set off a chain reaction affecting Bitcoin and cryptocurrencies, as investors are forced to liquidate their assets to cover losses and repay debts denominated in Japanese Yen.
Arthur Hayes, founder of BitMEX, hinted via X that a significant figure in TradFi (Traditional Finance) might be selling off their crypto holdings. He cautions that he doesn’t have definitive proof and refuses to name names. However, if you’re hearing similar rumors, it may be worth paying attention.
#3 Jump Trading And Large Sellers
On Sundays, when trading is usually less active, an unusual number of sell orders were spotted on significant exchanges such as Kraken, Gemini, and Coinbase. This pattern might indicate strategic moves by major players, possibly including the liquidation of positions by companies like Jump Trading.
It’s been said that Jump Trading has been heavily reducing its holdings of Ethereum, estimated to be around half a billion dollars over the last fortnight. Industry whispers suggest that this mass selling could stem from Jump Trading exiting their crypto market-making operations strategically or needing immediate cash. Ran NeuNer expressed his thoughts on Twitter: “I’m keeping an eye on Jump Trading’s rapid Ethereum selling… These are the sharpest traders globally, so why are they dumping so quickly on a Sunday with low trading activity? I suspect they might be forced to liquidate or have an urgent commitment.”
Dr. Julian Hosp, head of the Cake Group, posited on X that the intense cryptocurrency sell-off might be instigated by Jump Trading, who are either facing margin calls in traditional markets and require weekend liquidity or choosing to leave the crypto industry due to regulatory issues linked with Terra Luna. The selling pressure remains unabated at present.
In addition, Mike Alfred brought up a potential crisis in the market, implying that a significant Japanese investment fund could have failed, possessing a considerable amount of Bitcoin and Ethereum. Essentially, he said, “A major Japanese fund has imploded. Unfortunately, it had some Bitcoin and Ethereum. Other market players like Jump picked up on this tension and intensified the downturn. That’s all. Game over. Time to move on to the next thing.”
Over the past day, there was a significant surge in the number of traders having their positions closed (liquidated), as reported by CoinGlass. This resulted in a massive total crypto liquidation amounting to around $1.06 billion. The largest single liquidation, worth $27 million, took place on Huobi for a Bitcoin-US Dollar position.
Over the past day, a total of $302.07 worth of Bitcoin long positions were forcibly closed, as indicated by CoinGlass statistics. This was due to margin calls and stop-loss orders, which have intensified the bearish trend in cryptocurrency markets, causing prices to drop even more.
A less prominent factor might be the changing political climate, as Kamala Harris appears to have an advantage over Donald Trump in Polymarkets (Harris at 43%, Trump at 55%). This development is seen unfavorably by the Bitcoin and cryptocurrency market, which seems to favor a Trump victory. The market sentiment leans towards Trump’s intention to amass a “strategic Bitcoin reserve,” as he suggested over the weekend that Bitcoin could potentially be used to pay off the U.S.’s $35 trillion national debt.
Ultimately, the persistent dispersal of Bitcoins from the defunct Mt. Gox platform is still impacting the market. As previous users of the exchange receive and may choose to sell their recovered Bitcoins, this contributes to the downward pressure on the market, causing prices to drop even further.
At press time, BTC bounced off the support and recovered to $52,909.
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2024-08-05 11:47