As a seasoned researcher with over two decades of experience navigating global financial markets, I find myself intrigued by this recent rollercoaster ride we’ve witnessed in Bitcoin and other cryptocurrencies. The parallels drawn between the Nikkei’s recovery and that of Bitcoin are striking, reminding me of a not-so-distant past when the Black Monday crash sent shockwaves across the globe.
On Tuesday, the Bitcoin and cryptocurrency market showed a strong rebound, as Bitcoin exceeded $56,000 and Ethereum surpassed $2,500, bouncing back from what was known as “Block Monday.” The day before, Bitcoin dipped by approximately 15%, reaching a low of around $49,000, while Ethereum dropped over 20% to hit a low of $2,115. This recovery in Bitcoin and cryptocurrencies mirrored a broader revival in global financial markets, which was fueled by several significant factors.
#1 Nikkei Rebounds, Bitcoin Follows
As a researcher studying Japan’s financial markets, I observed an extraordinary recovery in the Nikkei 225, Japan’s primary stock index. This recovery marked a significant milestone since its most substantial drop since the 1987 Black Monday crash. On this occasion, the index soared by a remarkable 10.23%, closing at an impressive 34,675.46 points.
Renowned cryptocurrency analyst JACKIS (@i_am_jackis) recently noted on X that the current state of cryptocurrencies may primarily be influenced by broader economic trends, yet he doesn’t identify any particular event affecting the crypto market itself. He provided a comparison between Bitcoin and the Nikkei index to illustrate this point. As macroeconomic conditions stabilize, Bitcoin and other cryptocurrencies are expected to recover more robustly; however, it’s essential to exercise caution in the meantime.
#2 ISM Services Data Is Bullish
On Monday, the U.S. Institute for Supply Management disclosed that its non-manufacturing Purchasing Manager’s Index (PMI) increased to 51.4 in July compared to June’s 48.8. This is the lowest level since May 2020. This index assesses the vitality of the service sector, which comprises more than two-thirds of the U.S. economy. A PMI over 50 signals growth, and the recent data indicates a revival in service sector activity, alleviating some worries about an approaching economic downturn or recession.
Eric Wallerstein from Yardeni Research seemed pleasantly surprised and cautiously optimistic about the data: “Wow, it’s possible that the U.S. economy might not be collapsing? The ISM services employment increased by 5 points to 51.1, with the entire PMI remaining in expansion,” he stated via X.
Andreas Steno Larsen from Steno Research expressed concerns about the stability of market sentiment, stating, “The ISM Services index has moved out of the recession area once more. However, I’m unsure if it is robust enough to persuade markets. At present, we are not involved in macro trading. We are focused on leveraged stop orders.”
Ram Ahluwalia, CEO of Lumida Wealth, stated: “The ISM Services index is now increasing, contradicting the signal from the ISM Manufacturing data we saw last Friday. This isn’t a sign of an economic recession. Instead, it appears to be a technical or market-positioning adjustment. Keep in mind that earnings are currently rising by 12% compared to last year’s forecast of 9%. Such growth typically doesn’t occur during a recession’s turning point.”
#3 Market Anticipates Aggressive Fed Rate Cuts
In simple terms, it appears that the U.S. Federal Reserve is likely to reduce interest rates substantially over the next few months. Based on data from the CME FedWatch Tool, there’s approximately a 73.5% chance of a 0.5% decrease in rates by September. A smaller reduction of 0.25% is now almost guaranteed. This prediction represents a significant change in opinion compared to last week, when the likelihood of such cuts was much less.
Matt Hougan, Bitwise’s CIO, emphasized the swift change in market conditions: “A week ago, the market predicted a 11% probability of a 50 basis points rate cut in September. Now, it’s 100%. Things can move quickly,” he stated through X.
In my analysis, I’ve observed that the recent market downturn was significantly intensified by what some experts refer to as an excessive response to apprehensions about a potential U.S. economic recession. Macro analyst Alex Krüger underscores the recurring nature of this fear-influenced market dynamics.
Krüger stated that global anxiety about a potential U.S. recession is causing widespread panic, which in turn affects market prices in a self-reinforcing manner. He noted that the Volatility Index (VIX) recently spiked to 65, its third largest increase ever. However, this morning saw a significant rebound in market activity, while new data on ISM (Industry Production Survey) showed stronger-than-anticipated growth in demand and employment.
At press time, BTC traded at $56,010.
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2024-08-06 15:04