On Tuesday, bitcoin and cryptocurrency markets saw a solid recovery, with bitcoin breaking above the $56,000 mark and ethereum surpassing $2,500, recovering from “blockchain Monday.” Yesterday, bitcoin plunged over 15% to hit lows near $49,000, while ethereum fell over 20% to a low of $2,115. The recovery in bitcoin and cryptocurrencies paralleled a broader revival in global financial markets, driven by several key factors.
Nikkei #1 recovers, followed by bitcoin
Japan's main stock index, the Nikkei 225, staged an unprecedented recovery after its most significant drop since the Black Monday crash of 1987. The index rose 10.23% to close at 34,675.46 points. The rebound followed a sharp 12.4% drop on Monday, fueled by global market instability and fears of an impending US recession, coupled with complications from the unravelling of the yen carry trade.
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Popular cryptocurrency analyst JACKIS (@i_am_jackis) x.com/i_am_jackis/status/1820434624016765027″ target=”_blank” rel=”nofollow”>he stressed Via x: “I think cryptocurrencies are reacting to macroeconomic conditions right now, but in my opinion, there is nothing specific going on with cryptocurrencies themselves. Here we have btc and Nikkei in comparison. When macroeconomic conditions stabilize, bitcoin and cryptocurrencies should recover more strongly, but until then, be careful.”
#2 ISM services sector data is optimistic
The U.S. Institute for Supply Management reported Monday that its nonmanufacturing PMI rose to 51.4 in July from 48.8 in June, which was the lowest since May 2020. This index measures the health of the services sector, which makes up more than two-thirds of the U.S. economy. A PMI above 50 suggests expansion, and the latest data indicate a pickup in service-sector activity, easing some concerns about an impending recession.
Eric Wallerstein of Yardeni Research x.com/ericwallerstein/status/1820460921963299266″ target=”_blank” rel=”nofollow”>voiced Relief and cautious optimism on the data: “Wow, maybe the US economy isn’t collapsing? ISM service sector employment up 5 points to 51.1. All PMIs expanding,” he said via x.
Andreas Steno Larsen of Steno Research also x.com/AndreasSteno/status/1820468692003811618″ target=”_blank” rel=”nofollow”>commentedhighlighting the precariousness of market sentiment: “ISM Services is moving away from the recession zone again. I am not sure it is strong enough to convince the markets. We are not trading macro at the moment. We are trading leveraged stops.”
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Ram Ahluwalia, CEO of Lumida Wealth, x.com/ramahluwalia/status/1820469312337150450″ target=”_blank” rel=”nofollow”>aggregate:“ISM Services are *up*, reversing the signal from last Friday’s ISM Manufacturing data. There is no recession, folks. This is a technical and positioning-driven correction. Note that earnings were up 12% YoY vs. consensus of 9%. That doesn’t happen at a recessionary inflection point.”
#3 Market anticipates aggressive Fed rate cuts
Financial markets are currently pricing in significant monetary easing by the US Federal Reserve. According to the CME FedWatch ToolThere is now a 73.5% chance of a 50 basis point interest rate cut by September, and a minimum 25 basis point cut is now considered certain. This shift in expectations reflects a dramatic change in sentiment compared to just a week ago, when the likelihood of such cuts was much lower.
Matt Hougan, Bitwise’s chief investment officer, highlighted the rapid shift in market dynamics: “A week ago, the market was pricing in an 11% chance of a 50 basis point rate cut in September. Today, it’s 100%. Things are coming at you quickly,” he commented via x.
#4 Overreaction
The market rout was also exacerbated by what some analysts call an overreaction to fears of a US recession. Macroeconomic analyst Alex Krüger x.com/krugermacro/status/1820482554127929363″ target=”_blank” rel=”nofollow”>he pointed the cyclicality of this fear-driven market behavior.
“The world is suffering from a case of mass hysteria over fears of a US recession. A sign of price action being allowed to create a narrative that feeds price action as everything spirals down in a negative vicious circle. The VIX hits 65 points, the third largest increase in history. Then this morning there is a strong rebound at the open, while ISM data shows better than expected demand and job growth,” Krüger commented.
At the time of writing, btc was trading at $56,010.
Featured image created with DALL.E, chart from TradingView.com
