Crypto Market Pulse - August 5, 2024

LAST WEEK RECAP:

• U.S. unemployment rate was 4.3% in July v.s. 4.1% expected, which triggered Sahm rule and recession fears, resulting in a selloff in U.S. equity and crypto market.
• U.S. Initial jobless claims rose the most since August 2023, and the ISM manufacturing index came in at 46.8%, which was worse than expected.
• The Federal Reserve holds rates steady at 5.25% to 5.5%; Powell said a rate cut in September is “on the table,” provided the inflation data continues to be encouraging. The market is currently expecting 3 cuts by the end of the year.
• Jump Trading reportedly sold large assets, including ETH, during the weekend.
• According to Arkham, US Govt. Moves $2B of Silk Road Bitcoin to Anonymous Address.
• Arkham shows Mt. Gox wallets' BTC holdings are down to $2 billion from $9 billion a month ago, signaling the distribution is nearing its end.
• The Bank of England cut interest rates for the first time in over four years, bringing the key rate to 5%.
• Bank of Japan raises interest rate to 0.25%, suggesting another hike this year.

LEGACY MARKETS – DXY

Along with the dropped U.S. treasury yield, DXY moved to five-month lows near 103.40 in response to recession fears triggered by weaker-than-expected U.S. economy data. The market is now expecting three cuts by the end of the year, which could help the risky asset market in Q4.

LEGACY MARKETS – VIX

VIX rallied to 29.60 on Friday, hitting its highest level since March 2023 after recession fears intensified. Short-term volatility may remain until markets get a clearer message from the Fed, potentially from the Jackson Hole meeting on Aug 22nd.

BTC WEEKLY VIEW

BTC is currently testing $53K support after failing to hold $61K and $58K with an intensified selloff during the weekend. With the continued clearance of large Mt. Gox distribution pressure (Mt. Gox wallets’ BTC holdings are down to $2 billion from $9 billion a month ago), the correlation between BTC and U.S. equity could further increase and following price action is mainly dependent on market pricing of recession possibilities.

ETH WEEKLY VIEW

For ETH, aside from macro factors and the future timing of ETF net inflows, reported JUMP selling has caused quick capitulation and price rebounded from key $2K support after risk-return profile becomes better.

Although net outflows are gradually decreasing and the ETF is highly likely to replicate the inflow scenario seen with the BTC ETF launch, the price action is likely to be seen only after macro volatility settles down first.

ETH/BTC

With BTC's dominance increasing during the selloff period and intensified JUMP ETH selling, the ETHBTC ratio is under pressure and tested the 0.04 support line. The weakness may continue in the near term, but the ETH risk-return profile is becoming better after the capitulation.

TOTAL3 USD MARKET STRENGTH

The market's general lack of liquidity makes it difficult to have opportunities for altcoins still in the short term. Furthermore, when liquidity initially improves, we are more likely to see an increase in BTC dominance first.

TOTAL3 BTC MARKET STRENGTH

TOTAL3/BTC weakness will likely continue during the current volatile market triggered by recession fears and even after the initial liquidity increase from the Fed cut, as liquidity will likely start with BTC before more rotation into the general alt market.

SUMMARY

• The uncertainty around recession probabilities may persist in the short term, as the market will continue pricing in the likelihood of a recession based on more economic data. Although the market has raised expectations for more frequent and larger rate cuts by the Fed, the earliest response from the Fed could potentially come from the Jackson Hole meeting on August 22nd, so there will likely still be some volatility in August.
• On the crypto end, the selloff continued during the weekend and intensified, likely due to large JUMP selling based on on-chain monitoring data. This is likely frontrunning the recession fear narrative before the U.S. market opens and/or unwound some positions for debt purposes.
• This quick capitulation could potentially reduce the correction period in the crypto market, as crypto, especially major coins' risk-return profiles, become better after this capitulation and could attract some buying support. However, short-term volatility will continue with the equity market, and investors could get a clearer picture only after more economic data and the Fed's response, likely in Q4.

DISCLAIMER:

The information in this report is for information purposes only and is not to be construed as investment or financial advice. All information contained herein is not a solicitation or recommendation to buy or sell digital assets or other financial products.

This post was prepared by Kairon Labs Trader Patrick Li and Joshua Van de Kerckhove

Edited by: Marianne Dasal