Throughout July, we anticipated, and largely dismissed various factors that could trigger a Bitcoin crash amid a wave of FUD in the crypto market. In the end, it was not the Mt. Gox repayments, the sales by the German government, the capitulation of miners, or the wallet movements by the U.S. government that caused weakness in Bitcoin’s price, but rather exogenous elements outside the crypto ecosystem. Although Bitcoin has managed to remain detached from these influences at different times of the year, this time it could not remain unaffected by macroeconomic factors that have caused a downturn in traditional markets.
On Wednesday, following Powell's speech, where we essentially heard the familiar refrain of being "data-dependent" and needing more evidence that inflation is decreasing, traditional markets reacted calmly and optimistically ending the day in the green. It was not until Thursday, the start of August—characterized by lower liquidity in the market—that the effects of Powell's words were fully digested, and the risk of escalating conflict between Iran and Israel was weighed. As a result, the S&P 500 closed the day negatively, with a drop of more than 2%, foreshadowing more significant downturns.
The release of Non-Farm Payrolls (114k instead of the expected 175k) and the Unemployment Rate (4.3% vs. the forecasted 4.1%) has set off alarms in traditional markets, deepening their correction and sparking increased volatility (VIX up 25%, as expected). Specifically, technology stocks have continued a downward trend extending over three weeks (falling 8.8%), a streak not seen since 2022. This sell-off has spread to all risk assets, including Bitcoin. The fear that the damage inflicted by the Federal Reserve's quantitative tightening might be so extensive that a recession becomes inevitable has heightened the likelihood of an interest rate cut of up to 25 basis points in September.
The sell-off in the crypto market has been more severe and profound with altcoins, placing them at price levels similar to those seen when Bitcoin fell to $53k at the beginning of July. According to our indicators, we are in a territory dominated by Bitcoin, in an environment where risk has spiked again and has intensified the bearish momentum. We are approaching the lower edge of the long-term range we have been tracking. The question now is whether we will find sufficient liquidity at these levels to continue the bullish momentum. Let's find out.
Speedometers indicating the current state of BTC. The full dot represents the current reading and the white dot represents one week ago.
The Bitcoin network is looking healthy.
As we have observed, short-term movements in Bitcoin's price have aligned with the overall sentiment in the traditional market, which is influenced by macroeconomic data and political turmoil. It's important to note that this recent downtrend does not coincide with a weakening of Bitcoin's fundamentals. On the contrary, the fundamentals have maintained an upward trend. This discrepancy highlights that while market sentiment can drive price fluctuations, the core health and growth of the Bitcoin network remain robust.
Bitcoin Fundamental Index (BFI) blue is bullish, red bearish, and gray neutral.
Don’t expect quick returns in altcoins right now.
Looking at Swissblock’s proprietary Altcoin Quadrant chart below, we can see that the major layer 1 ecosystems...
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