Bitcoin has suffered its largest loss since the collapse of FTX in recent days, falling about 20% from Friday to Monday morning.
However, it has modestly recovered with the start of trading on Tuesday, currently trading at $55,511.
This decline has raised the total losses in the cryptocurrency market since the beginning of August to over half a trillion dollars.
A series of negative events, including lower-than-expected non-farm payroll data, geopolitical tensions in the Middle East, Japanese interest rate hikes, increased likelihood of Kamala Harris winning in the polls, and reduced liquidity over the weekend, have exacerbated the negative impact on the market.
The collapse was not limited to cryptocurrencies; the entire capital market fell, with the Japanese stock market being the most affected. The last time the financial market faced such a sell-off was on March 12, following the global emergency due to COVID-19. Bitcoin dropped by 37%, from $7,911 to $4,971. However, the external crisis did not change the fundamentals of Bitcoin’s price movement at that time. Quantitative easing programs and interest rate cuts by banks supported a rapid rise in Bitcoin, exceeding 1,000% to $57,322 within a year.
Similarly to current events, where major investors in the market, including Tesla and SpaceX CEO Elon Musk and Jeremy Siegel from Wharton, are anticipating an interest rate cut by the Federal Reserve at its September meeting, data shows that the likelihood of a rate cut of more than 50 basis points has exceeded 55%.
Therefore, I believe it is important to monitor whether the cryptocurrency market has truly found its bottom, as over a billion coins in liquidation might indicate a potential bottom in the short to medium term. Particularly since Bitcoin’s price is still above the average mining cost. Historically, a drop below this level has indicated a previous bearish market.
From my perspective, attention should be given to the overall health of crypto companies, as the market collapse in 2022 revealed that sharp market declines can lead to the collapse of companies with over-leveraged balance sheets.
Monitoring the flows through cryptocurrency exchange-traded funds (ETFs) will also be crucial to see whether ETF investors will join the current wave of panic by selling their holdings or act as support to halt the market’s decline. I believe that Bitcoin ETFs may experience significant cash inflows in the medium to long term, which would indicate a violent rise in Bitcoin prices.
Meanwhile, Capola Management, the fourth-largest fund in the EU, has announced a $500 million investment in Bitcoin ETFs. Additionally, 15,000 financial advisors at Morgan Stanley will offer immediate investments in ETFs to their clients. This makes them the first among Wall Street giants to take this step, reflecting a new phase of Bitcoin adoption, driven by high client demand.
Futu Securities International, the largest online brokerage in Hong Kong, has also launched cryptocurrency trading for its 22 million users. Customers can trade BTC and ETH using Hong Kong dollars or US dollars. In my opinion, this could be a signal that Bitcoin’s price may replicate the aggressive rises seen after COVID-19 once market sentiment stabilizes after the recent downturn.
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