U.S. Economic Data Shocks
On Friday, the U.S. released disappointing economic data. Non-farm payrolls fell to 114,000 in July, manufacturing orders dropped 3.3%, and unemployment rose from 4.1% to 4.3%. These figures, far below expectations, signal a potential recession.
Global Market Reactions
Global financial markets reacted negatively to these risks. The Nikkei index fell the most, dropping 11.1% due to Japan’s first interest rate hike since 2006, raising rates to 0.25%.
Bitcoin’s Sharp Decline
Bitcoin faced a significant sell-off, dropping 13.2% for the week, its worst performance since the FTX collapse in November 2022. By Monday, the cryptocurrency was down 30% from its all-time high.
Additional Influences
Several factors contributed to Bitcoin’s decline. Over the past two months, 96,000 BTC (~$6 billion) were returned to former Mt. Gox clients, and the German government sold 50,000 BTC (~$3 billion). However, Bitcoin remains a highly volatile asset, and this correction is typical for a growing market. In previous bull cycles, Bitcoin saw corrections ranging from 40% to 60%.
Positive Macro Trends
Positive macroeconomic factors include the halving event, Bitcoin’s recognition as an investment asset, and the increase in companies holding crypto reserves. Furthermore, the likelihood of a U.S. Federal Reserve rate cut has grown. With unemployment rising, the Fed might accelerate monetary easing. The probability of a 0.5% rate cut in September has risen to 78%, up from 30% last week.
Future Prospects
While Bitcoin’s current correction remains within normal ranges, it could have been less severe without the sale of government-held coins. The situation could worsen if U.S. ETF investors, holding $17.7 billion, react negatively to the recent news. However, if ETF investors do not panic, the U.S. government doesn’t sell its 204,000 BTC (~$11 billion) reserves, and financial markets remain stable, Bitcoin could return to a growth trajectory and reach new price highs by fall.
