(Kitco News) – Financial markets saw a volatile start to the week as the momentum generated by Friday’s comments from Fed Chair Powell signaling that interest rate cuts are on the table faded ahead of a busy week of data, with Nvidia’s (NVDA) earnings report taking center stage.
Analysts at Bitfinex credited struggles in the labor market with “contributing significantly” to the dovish pivot from the Fed, noting that the market “added fewer jobs than initially reported over the past year.”
“This downward revision, combined with weaker-than-expected payroll data for July, has raised alarms about the health of the labor market,” they said. “The unemployment rate reached a post-pandemic high of 4.3 percent, which has triggered worries that the Federal Reserve may have delayed too long in reducing interest rates. However, more recent data, including weekly jobless claims, suggest that the labor market is undergoing a more controlled slowdown.”
The major stock market indices all gained more than one percent last week thanks to Powell’s comments as investors quickly priced in 100 basis points worth of cuts in 2024, spread over September, November, and December. Data provided by the CME FedWatch Tool shows the odds of a 50 bps cut in September now stand at 30%.
With investors eagerly eyeing this week’s data, asset prices were subdued on Monday, with the major indices seeing a mixed performance. At the closing bell, the Dow was flat, while the S&P and Nasdaq recorded losses of 0.32% and 0.85%, respectively.
Powell’s dovish comments helped Bitcoin break out of its previous range on Friday, “driven by heightened trading activity and a significant increase in open interest,” said analysts at Secure Digital Markets. “Spot volume has slightly decreased following the initial surge,” leading to a Monday downtrend in Bitcoin’s price.
“The recent recovery in cryptocurrency prices has been bolstered by a robust expansion in stablecoins, with $1 billion in new tokens minted over a seven-day average,” they noted. “Bitcoin's open interest is once again approaching the critical resistance level of 180,000 to 190,000 contracts, a point historically associated with sharp market movements. A pullback to $62,000 could present a strong buying opportunity for those looking to go long.”
BTC/USD Chart by TradingView
Data provided by TradingView shows that King Crypto drifted lower towards support at $63,000 throughout the day and currently trades at $63,415, a decrease of 1.30% on the 24-hour chart.
Positive correlation with stocks
Since hitting a low of $49,053 on August 5, Bitcoin’s price has rallied 30%, helping it to make up for the ground lost to stocks, which continued to climb to new heights as BTC floundered.
“Bitcoin’s rally occurred amidst a backdrop of increasing positive correlation between Bitcoin and US equities,” said analysts at Bitfinex. “Until now, Bitcoin has shown relative weakness compared to equities since hitting its early August low. Fridayʼs price surge also saw a sharp increase in correlation, which we believe indicates a return of risk appetite to the market.”
BTC Pearson Correlation with the S&P and Nasdaq. Source: TheBlock
“It is a common occurrence that higher volatility assets move later as compared to lower volatility assets, in this case, equities,” they noted. “The market is clearly exhibiting a risk-on sentiment, encouraged by the apparent imminence of rate cuts, and the current lack of overhang, given the complete distribution of seized bitcoins by German law enforcement, while the Mt. Gox distribution is almost complete.”
“Added to this are the significant short liquidations seen on August 23rd, with $40 million in BTC perpetual futures liquidations and $140 million across all pairs,” they said. “This comes as there has been a substantial drop in open interest, suggesting reduced leverage in the market.”
“As interest in delta-neutral and funding arbitrage trades rises, the directional open interest in the market has decreased, potentially allowing more room for price appreciation in Bitcoin and altcoins,” they speculated. “The current funding rates, significantly lower than earlier this year, also indicate a shift in market dynamics, highlighting a more cautious approach among leveraged traders despite the overall bullish sentiment.”
According to TradingView analyst TradingShot, Bitcoin’s sharp rebound from its dip below $50,000 points to a positive finish to the year.
“Bitcoin will close the month of August this week and the 1M candle not only rebounded aggressively on the 1W MA50 (red trend-line) but also held the Symmetrical Pivot Zone for the 6th straight month,” he said.
“This Zone is critical because during the previous Cycle in late 2021, it served as Resistance, and since the recent March 2024 break-out, it has been acting as Support,” TradingShot noted. “The Bullish Waves on the 2-year Channel Up indicate that after this month closes, $100,000 is well within reach.”
Altcoins drift lower
Altcoins trended lower on Monday with only a half dozen tokens in the top 200 recording gains larger than one percent.
Daily cryptocurrency market performance. Source: Coin360
OriginTrail (TRAC) was the top gainer, with an increase of 18.3%, followed by an 8.9% gain for Akash Network (AKT) and a 7.4% increase for Helium (HNT). DOGS (DOGS) was the biggest loser, falling 26.3%, while Sun (SUN) fell 14.6%, and cat in a dogs world lost 13.3%
The overall cryptocurrency market cap now stands at $2.21 trillion, and Bitcoin’s dominance rate is 56.5%.
