Continuous Collapse Hits the Cryptocurrency Market… Bitcoin Loses 15% in Hours
Cryptocurrencies experienced a wave of risk aversion in global markets on Monday, leading to a decline of over 15% in Bitcoin over the past 24 hours, while Ethereum, the second-largest cryptocurrency by market value, suffered its biggest drop since 2021.
Bitcoin traded down 15.1% in the last 24 hours at $51,734, adding to a 13.1% decline last week, its worst since the collapse of the FTX exchange.
Meanwhile, Ethereum lost more than a fifth of its value, now down about 22% in the last 24 hours, reaching $2,290.
Most major cryptocurrencies, including Binance Coin, Solana, and Ripple, were also in the red.
The declines came amid intensified global stock sell-offs, reflecting concerns about economic outlooks and questions about whether the massive investment in artificial intelligence is a bubble. Geopolitical tensions in the Middle East are also adding to investor anxiety.
Meanwhile, U.S. Bitcoin exchange-traded funds (ETFs) saw their largest outflows in about three months on August 2. One question is whether these products will attract buyers again when trading resumes or succumb to deeper exits.
Carry Trade Impact
Cryptocurrencies were partly affected by the quieting of yen-related carry trade with the expected continuation of high interest rates in Japan, according to Hayden Hughes, Head of Cryptocurrency Investments at Evergreen Growth.
Hughes added that “these investors are also facing a significant increase in hedging costs based on the fluctuations in the U.S. dollar against the Japanese yen.”
Bitcoin has faced a series of factors since hitting a record high of $73,798 in March, including changes in the U.S. political landscape where crypto-supportive Republican Donald Trump is competing against Democratic Vice President Kamala Harris, who has yet to clarify her stance on digital asset policy, in the presidential race.
U.S. Interest Rate Expectations
Bond traders have increased their bets on U.S. interest rate cuts starting in September to support economic expansion and strongly avoid a potential recession. Sean Farrell, Head of Digital Asset Strategy at Fundstrat Global Advisors LLC, claimed that less restrictive monetary policy is actually “a good thing for cryptocurrencies.”
Bitcoin’s drop on Monday left the token at levels last seen in February. Meanwhile, Ethereum earlier fell to prices last seen at the start of the year. Similar to Bitcoin, one unknown factor is how investors will react in the new U.S. ETFs.
Justin Danithan, Head of Business Development in the Asia-Pacific region at Keyrock, said the decline in cryptocurrencies was somewhat led by Ethereum, citing social media rumors about institutional sales of ether-linked assets.
Coin Glass data showed that about $760 million of bullish cryptocurrency positions using derivatives were liquidated in the last 24 hours, a sign that leveraged bets have become unstable.
Gold in Disarray Amid a Massive Sell-off Sweeping Global Markets
Global gold prices witnessed significant turmoil between futures and spot prices during Monday’s trading, with prices experiencing clear fluctuations amid market collapses supported by fears that the U.S. might be heading towards a recession.
Tim Waterer, Chief Market Analyst at KCM Trade, said, “Gold is attracting safe-haven flows as financial markets veer towards risk aversion at the start of the week.”
Waterer added, “Markets are in a state of volatility regarding U.S. economic expectations and whether rate cuts will come quickly enough from the Federal Reserve.”
Stock markets fell and bonds rose in Asia as fears of a U.S. recession drove investors away from riskier assets.
Data on Friday showed U.S. job growth in July was less than expected, with the unemployment rate rising to 4.3%, indicating potential weakness in the labor market and a possible entry of the U.S. economy into a recession.
Data from the Bureau of Labor Statistics showed that the U.S. economy added 114,000 jobs in July, compared to a downwardly revised addition of 179,000 in June, and against expectations of adding 176,000 jobs.
Traders are pricing in a more than 70% chance of the U.S. central bank cutting interest rates by 50 basis points in September, compared to an 11.5% chance a week ago, according to the U.S. Interest Rate Tracker tool available on Investing Saudi Arabia.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion.
Meanwhile, Richmond Federal Reserve Bank President Thomas Barkin maintained a cautious outlook on Friday, saying he was not ready to change his view on monetary policy.
Gold and Dollar Now
Spot gold contracts fell about 0.21% to $2,437 per ounce.
Meanwhile, gold futures are now up 0.4% to $2,479 per ounce.
On the other hand, the dollar index fell by 0.45% to 102.52 points.
Other Metals
Silver fell in spot transactions by 0.4% to $28.43 per ounce, platinum dropped 1.23% to $946.10, and palladium declined 0.9% to $882.09.
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