Anika Begay
Bitcoin and cryptocurrency markets are currently experiencing one of the worst days since the FTX crash in November 2022. On Binance, Bitcoin price has plummeted to $49,000, marking a sharp 15% drop in the last 24 hours. Similarly, Ethereum has plummeted by 20.4%, Binance Coin (BNB) by 20.0%, Solana (SOL) by 18.4%, and XRP by 17.4%.
Cryptocurrency market crash is less severe
However, macro and crypto analyst Alex Krüger believes that the circumstances could be even worse. Krüger’s analysis attributes the severity of the collapse not to factors internal to the cryptocurrency market, but to broader macroeconomic policies, highlighting in particular the conflicting monetary policies of the US Federal Reserve and the Bank of Japan.
“This disaster is obviously driven by macroeconomics, rather than cryptocurrencies. And it is becoming clear that the main driver is not the collapse of the US economy (recession talks increased after payrolls last Friday). It seems that the policy mistake was not that the Fed did not cut fast enough, but rather that it did not cut while Japan was rising. This is obviously hindsight, and we now need the US economic data to confirm it,” Krüger said.
He highlighted the correlation between the market sell-off and specific global financial events, “The chart shows where the sell-off started last week. Right after the FOMC on Wednesday. That’s exactly when the Nikkei opens.” Krüger further explained why the situation could be worse. On the nature of the financial crisis, he noted, “A financial crisis driven primarily by a cascade of indebted Japanese speculators is a much better alternative than a financial crisis driven by the United States going into recession.”
Krüger also highlighted the critical nature of upcoming U.S. economic data releases, especially labor market indicators. “When it comes to U.S. data, the focus is now on the labor market, so pay close attention to Thursday’s initial jobless claims (not typically market-moving data) as well as state employment data (which provides detailed state-level employment data, something markets rarely pay much attention to), which will be released on August 16.”
The analyst noted that the situation could be even more dire, attributing the relatively contained fallout to the fact that the macroeconomic crisis was not triggered by a hard landing scenario. He said: “BTW it’s not sugar-coating. What’s lost is lost. The charts are REKT. But we don’t really want to go into a hard landing scenario. I don’t see it in the data yet.”
Adding to the conversation, popular X crypto trader Daan Crypto Trades (@DaanCrypto) shared his perspective on the potential market recovery dynamics that are reminiscent of past market corrections. “It will be interesting to see how well the average market participant has 2020 muscle memory. Buying the blood of the Covid crash when stimulus kicked in was probably one of the best trades of the last decade. Across all markets.”
However, as Daan points out, there is no guarantee that history will repeat itself. “I wonder if, knowing this, market participants are more willing to rush in early, given how well it went just 4 years ago. I’m not saying this is the move, just something I’m curious to see unfold. Let’s see first if central banks are willing to step in early.”
At press time, BTC was trading at $51,927.
Featured image from Shutterstock, chart from TradingView.com
