The financial markets have been shaken in the past four days following a disappointing jobs report in the United States that triggered recession fears and the price of Bitcoin is not free from taking its respective toll.
In the past 24 hours, the price of BTC has retreated by nearly 19%, according to data from CoinMarketCap, and stands at $54,615. However, during the Asian session, the value of the digital asset dipped below the $50,000 mark temporarily to effectively touch its lowest level since February 13.
Over $200 billion in wealth has evaporated in just a few days from the crypto market and BTC alone has seen its annual gains drop from nearly 50% to just 30% as the launch of exchange-traded funds (ETFs) in January along with the network’s fourth halving managed to prompt a wave of positive momentum toward the digital asset.
Concerning Jobs Market Report Triggers Sell-Off in the US
Various factors are contributing to today’s sharp drop in the price of BTC. Most analysts agree that the primary catalyst for this recent sell-off is a growing concern that the United States could be heading to a recession.
According to data from the Bureau of Labor Statistics (BLS), only 114,4000 non-farm jobs were added in July resulting in a significant drop compared to the 206,000 new positions that were created the month before.
This was a surprising turn of events for analysts as the consensus estimate for this variable stood at 185,000 as per data from Dow Jones. Meanwhile, the unemployment rate surged to 4.3% – a 20 basis point increase compared to the previous month and a 90- basis-point increase compared to the same period a year ago.
Investors quickly processed the data and appear to have interpreted this slowdown in the jobs market as a sign that the country could be heading to a recession, especially as the Federal Reserve did not cut its benchmark interest rate during its meeting last week.
Based on the Fed’s current schedule, the market would have to wait until September for the central bank to take action. Some see this as too long of a wait as the economy has already sent signals that a ‘soft landing’ is not the most likely scenario.
Bank of Japan Raises Interest Rates to Highest Level in 15 Years
Adding to the complexity of the situation, the Bank of Japan’s decision to raise interest rates to 0.25% and reduce bond purchases has had far-reaching consequences. This move led to an appreciation of the yen, forcing investors to unwind their positions. The ripple effects of this decision have contributed to the global market sell-off, impacting US tech stocks and broader global markets, including the cryptocurrency sector.
The scenario became even more complex as the Bank of Japan decided to raise its interest rate by 0.25% and slow the pace at which it buys bonds and other fixed-income assets. The move led to an increase in the value of the yen and forced thousands of investors to unwind their positions.
This could have also contributed to the sell-off, which is impacting not just Bitcoin (BTC) and cryptocurrencies but also stocks, foreign currencies, and the bond market.
Data from CoinShares reveals that Bitcoin has been facing pressures from investors over the past week. In the week ending on August 3, the digital asset saw $400 million in capital outflows after five straight weeks of gains.
Moreover, the distributions issued by bankruptcy managers from the demised Japanese crypto exchange Mt. Gox may have also weighed on the price of BTC in the short term as thousands of tokens were sent to their rightful owners after years of waiting.
Finally, the current VP of the United States, Kamala Harris, was appointed as the official candidate for the Democratic party and has managed to narrow the lead of her Republican rival Donald Trump.
Crypto markets are not particularly fond of Democrats as President Joe Biden and his administration have been considered hostile to the sector throughout his 4-year tenure.
Here’s What Analysts Think About this Drop
This recent sell-off is already prompting analysts to take a hard and closer look at what’s going on due to its magnitude.
According to Antoni Trenchev, the co-founder of the crypto exchange Nexo, any 30% drop in BTC should be expected during a bull market cycle. He went on to acknowledge, however, that this is a “choppy, volatile market environment”. He encouraged traders to keep an eye on the 200-day moving average. Trenchev believes that when the price rises above that technical indicator, it typically tells him if this is a bull or bear market.
Meanwhile, the crypto analyst Yuya Hasewaga from Bitbank believes that weak data from the United States labor market provides adequate context to understand the drop. He cautioned that the market’s reaction thus far is “a tad excessive” as there is no evidence yet that a recession has started.
On the other hand, the head of 10x Research, Markus Thielen, noted that BTC could drop to the $42,000 level and cited factors beyond economic data in the US including a weak market structure and cycle analysis.
Analysts suggest that the $50,000 mark is a major psychological area of support that traders should keep an eye on while further signs that the US is heading to a recessionary cycle could also prompt further drops as they would confirm the view that the economy is unexpectedly deteriorating.
Other Cryptocurrencies Were Hit Harder, Crypto Stocks Were Not Spared
Aside from Bitcoin, Ether (ETH), the second largest digital asset by market capitalization, has experienced a significant drop in the past four days as well. In the past 7 days, ETH accumulates a 26.2% loss and its price currently stands at $2,445 per coin.
Moreover, well-established meme coins like Dogecoin (DOGE) and Shiba Inu (SHIB) have experienced similar losses of 26.3% and 21.5% during this same period.
Crypto-related stocks were among the hardest hit during the sell-off with Coinbase (COIN) seeing its stock price plummet by 7% today and MicroStrategy (MSTR) experiencing a similar 10% decline.
Meanwhile, Bitcoin-linked ETFs have seen an increase in their trading volume. According to data from Galaxy Digital, over $1 billion worth of these shares were negotiated just minutes after the opening bell while $300 million more were traded just 20 minutes after.
This suggests that some investors are taking advantage of the drop to get their hands on cheaper BTC tokens via these passively managed funds.
Will the Fed Convene an Emergency Meeting?
Market participants will be observing the behavior of BTC and other cryptocurrencies during what remains of the week to see if this is just a temporary correction or if this could be the beginning of a bear market triggered by economic worries.
The Federal Reserve’s actions will also be closely watched. Any emergency meeting may be interpreted as a sign that things are worse than initially expected regarding the economy and the overall financial system.
However, the situation can hardly be qualified as an “extreme” scenario to justify this kind of action. For example, the last time the Fed rushed to cut rates was during the pandemic. Surely, this is nothing even remotely close as severe as that.
While the extent of the drop has been dramatic, it’s important to remember that volatility has always been an inherent characteristic of the cryptocurrency market. This current downturn, while significant, is not unprecedented in the history of Bitcoin and other digital assets.
The resilience of the cryptocurrency market in the face of previous setbacks suggests that any lost territory can be easily recovered, although nobody can predict how long it will take.