(Kitco News) – Financial markets stayed volatile on Wednesday as asset prices climbed higher in early trading only to fall into the red in the afternoon as investors continued to deal with the fallout brought by the 12% drop in Japan’s Nikkei on Monday.
Prices rose following statements from the Bank of Japan (BoJ) that they would hold off on additional interest rate hikes following the bloodbath sparked by last week’s hike to 0.25%.
“A notable catalyst is the statement from BOJ Deputy Governor Shinichi Uchida, who assured that the central bank wouldn't hike borrowing costs amid market volatility, providing a sigh of relief for investors in risky assets like crypto and equities,” said analysts at Secure Digital Markets.
But mounting recession fears continued to give investors reason to limit their exposure to the markets, leading to downturns in cryptos, stocks, gold and silver on Wednesday afternoon and increasing the odds of a rate cut in September.
“Market sentiment is shifting towards a high probability of Fed rate cuts in September and December,” Secure Digital Markets said. “Traders are pricing in a half-point cut in September, with aggressive easing expected to slash 2.25 percentage points off the Fed’s short-term borrowing rate by the end of next year. The likelihood of a 50bps rate cut in September has surged from 6% a month ago to 66% today.”
Chatter about the possibility of an emergency interest rate hike has also picked up, with many analysts seeing it as a distinct possibility since a lot can happen during the 41 days until the FOMC meeting on September 18.
"I believe we could see the Fed attempt to perform an emergency rate cut of 0.75% soon and another one of equal level in September,” said Brian Dixon, CEO of OTC Capital, in a note to Kitco Crypto. “It’s also possible that the Fed does nothing. It's too early to tell at this point.”
“I think we may see central banks turn on the money printers to socialize the losses,” he added. “If this occurs, I believe we would gear up for a tremendous bull run on risk assets. Additionally, the digital asset markets would perform well. The last time we saw tremendous money printing was during COVID and that drove a crypto bull run to new heights.”
Addressing Bitcoin’s (BTC) recent 30% drawdown from $70,000 to $49,053, Dixon said, “This is a short-term event in my opinion and also normal volatility in bull markets for Bitcoin. Bitcoin had 20% - 30% drawdowns 11 times during the 2017 bull market while still reaching new all-time highs. Bitcoin had four 20% - 30% drawdowns during the 2020-2021 bull market while still reaching new all-time highs. I believe it is risk-on investors selling Bitcoin for quick liquidity.”
Data provided by TradingView shows that after hitting a high of $57,760 on Wednesday morning, bears took control of the price action and dropped King Crypto back below $55,000.
BTC/USD Chart by TradingView
At the time of writing, Bitcoin trades at $55,295, a decrease of 2.17% on the 24-hour chart.
Stocks also recorded losses, with the S&P, Dow, and Nasdaq closing down 0.77%, 0.60%, and 1.05%, respectively. At the time of writing, gold is down 0.20% while silver has lost 1.44%.
Weakness not over
While Tuesday’s bounce-back in cryptos and stocks gave many investors cause for hope, Markus Thielen, head of research at 10x Research, thinks there is more downside ahead and recommends that crypto traders wait on the sidelines until Bitcoin falls to $40,000.
“To ideally time the next bull market entry, we aim for Bitcoin prices to fall into the low 40,000s,” Thielen wrote on Wednesday.
“The Bitcoin crash on Monday reversed upon reaching the Bitcoin Spot ETF launch date on January 11/12, 2024, a key reference point in the market's recent history,” he said. “Traders are focused on the technical aspects of price movements, and a thorough understanding of this analysis can lead to more informed trading decisions. Even the most optimistic crypto traders must acknowledge that the declines have been progressively deeper: 56,500 in May, 53,500 in July, and 49,100 in August.”
“Bitcoin is attempting to recover, but the strong resistance from the well-defined downtrend will likely be more challenging after the recent support break,” Thielen said. “Our bearish outlook stems from monthly technical indicators, which, as of May 2024, have reached levels where prices have historically reversed in previous bull markets, such as in January 2018 and April 2021.”
“We can only confirm this in a few months with the benefit of hindsight,” he noted. “However, it has periodically influenced our expectations of price declines in April, June, and August 2024.”
“From a technical perspective, the 56,000/57,000 area is expected to act as significant resistance for Bitcoin,” Thielen said. “A close above this level would be a positive sign. However, it is crucial to have firm stops in place for long positions (54,000) due to the prevailing downside risk indicated by incomplete technical indicators.”
Thielen’s call for a $40,000 BTC was supported by several analysts, including Gokhstein Media founder David Gokhstein, who tweeted, “I’d love to see Bitcoin drop to $50K, or even $40K. That would be a perfect opportunity to scoop up some more.”
“If #Bitcoin breaks this support, $40k is next,” said market analyst Crypto Rover.
And Timothy Peterson, founder of Cane Island Alternative Advisors, thinks Bitcoin is just as likely to fall to $40,000 as it is to surge to $80,000 in the next 60 days.
#Bitcoin $40k and $80k equally likely in the next 60 days. pic.twitter.com/ztq9MiERcv
— Timothy Peterson (@nsquaredvalue) August 5, 2024
“We believe that these market jitters will persist in the short-term, but it’s possible that shorts could get squeezed here, which could lead to a market rebound in the next few days,” said analysts at Coinbase in a note to readers on Monday. “But don’t be fooled into thinking that this market disruption is over. Crypto still has some technical factors weighing on it, like in-kind BTC and ETH distributions by Genesis as part of its bankruptcy liquidation plan.”
“We think this phase may last through the Fed decision in mid-September,” they added. “Consequently, we retain our forecast for a choppy market in 3Q24 but also believe that this pullback does not represent the start of a new market cycle. Rather, the current sell-off is consistent with our defensive approach in 3Q24 and more constructive outlook for 4Q24, albeit the strength of this move tests our conviction.”
Altcoin’s bleed
It was a red day for altcoins, with only a dozen or so tokens in the top 200 posting gains.
Daily cryptocurrency market performance. Source: Coin360
Popcat (POPCAT) led the gainers with an increase of 14.6%, while dogwifhat (WIF) climbed 10.4%, and Aragon (ANT) gained 7.8%. Safe (SAFE) led the losers, falling 15.8%, while Notcoin (NOT) declined by 12.5%, and Lido DAO (LDO) lost 10.8%.
The overall cryptocurrency market cap now stands at $1.93 trillion, and Bitcoin’s dominance rate is 56.1%.
