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| By Marija Matic |
The crypto market endured its most significant downturn since the FTX collapse yesterday. At the lowest point, Bitcoin (BTC, “A”) plunged below $50,000 and Ethereum (ETH, “A-”) dipped to $2,100.
The broader financial landscape was equally turbulent. Japan's stock market suffered its worst crash since 1987 and U.S. stocks got hit by $1.93 trillion in losses.
A confluence of factors triggered this market-wide upheaval: A hawkish Bank of Japan, escalating Middle East tensions and deepening recession fears among them.
However, due to the realization that the fears may be overblown, the market rebounded today.
Japanese stocks gained 10.2% — their best day since October 2008. And the U.S. market is already showing positive signs of recovery.
In crypto, Bitcoin has reclaimed the $56,000 level and Ethereum surpassed $2,400 today, with smaller cryptocurrencies making even larger gains.
As my colleague Dr. Bruce Ng mentioned yesterday, volatility like this can be tough to traverse. And the markets will likely stay volatile until central banks provide clearer direction. While expectations for Federal Reserve rate cuts are growing, the potential for emergency cuts could exacerbate market panic. So, a more measured approach is anticipated.
Key updates are expected from the Bank of Japan on Aug. 7 and from the U.S. Federal Reserve later in August.
Still, it’s important to remember that late summer sell-offs often precede substantial upward movements during fall in both crypto and traditional markets.
Amidst market uncertainty, Bitcoin's brief dip below $50,000 — along with the highest weekly trading volume since the FTX collapse — has sparked speculation about whether this could signify a market bottom.
Let’s examine the data:
- Social Sentiment: Social media data shows an increase in "buy the dip" calls, though not yet close to the euphoric intensity seen in November 2022.
- Fear and Greed: The rapid shift from last week’s 'greed' to today’s 'extreme fear' mirrors past bottoms, suggesting a possible good buying opportunity.
- MVRV (30D) Ratio: The ratio between market price and realized price reached the lowest since November 2022, indicating that Bitcoin is significantly undervalued below $50k.
- Deleveraging: Significant liquidation of leveraged positions has reduced market risk.
- Demand: DeFiLlama data reveals a substantial daily net inflow of $1.2 billion into Binance, one of the platform's largest in 2024, indicating strong investor interest in buying at lower prices.
While the prevailing macro uncertainty has quieted the loudest shouts of "buy the dip" enthusiasm, these metrics suggest that investors are cautiously positioning themselves for potential entry points.
Indeed, just look at investors’ resilience in the face of the downtown.
Institutional investors, such as clients of BlackRock, have displayed remarkable composure. Despite a -14% weekend decline following an 8% drop the previous week, there were zero outflows from BlackRock's iShares Bitcoin Trust (IBIT) ETF.
While total outflows for all Bitcoin ETFs reached -$168 million, this represents a negligible 0.3% of total assets under management, with Grayscale accounting for a third of this figure.
This suggests that institutional investors surprisingly remain unfazed by recent volatility.
But it’s not just the mature investors who have demonstrated resilience. The crypto ecosystem itself has undergone a rigorous stress test.
Stablecoins and lending protocols are often early indicators of market health, as they are susceptible to bank runs and liquidations during times of volatility. And despite yesterday's market turmoil, stablecoins such as Tether (USDT), USD Coin (USDC), Dai (DAI) and Ethena's USDe (USDE) maintained their pegs, a testament to the industry's increased maturity.
This stability reflects the current resilience of the crypto market, which has been heavily purged of bad actors in 2022.
The DeFi lending landscape also proved robust. While over $320 million in liquidations occurred across various protocols, platforms like Aave (AAVE, “B”) showcased impressive resilience. With $21 billion in value secured across 14 active markets, Aave's decentralized treasury even generated $6 million in overnight revenue by safeguarding the system.
This demonstrates the evolving sophistication of DeFi protocols and their capacity to withstand market shocks.
In stark contrast, traditional centralized trading platforms experienced significant disruptions. Major financial institutions such as Schwab, Vanguard, Fidelity, Ameritrade and E-Trade encountered extended outages, rendering their platforms inaccessible for hours during peak volatility.
This starkly highlights a key advantage of decentralized finance: unwavering 24/7 accessibility.
While crypto platforms demonstrated resilience and continued to operate smoothly, their centralized counterparts struggled to cope with the market turmoil. This stress test underscores DeFi's superior ability to withstand extreme market conditions.
What Lies Ahead
As market conditions stabilize following the recent turbulence, a critical question emerges: Have we witnessed the bottom of this market cycle, or is further volatility on the horizon?
While the swift reversal of Bitcoin and Ethereum suggests strong underlying demand, global economic uncertainties will continue to influence market sentiment throughout August. Encouragingly, the initial overreaction to Asian market concerns and recession fears appears to be subsiding.
This fall may well set the stage for a historic shift in the market.
Best,
Marija Matić
P.S. If this market volatility isn’t your speed, my colleague and startup investing specialist Chris Graebe has found an out-of-this-world opportunity.
And that I mean that literally. Chris is looking to the stars and has found a company using tech so far advanced, Elon Musk could see his entire space empire destroyed overnight. McKinsey & Co. values this opportunity at over $1.4 trillion.
And very soon, Weiss Memberslike you can claim an early stake in the company supercharging this trend… BEFORE it ever goes public.
He’ll be giving you the details in his Summer 2024 Private Investment Summit this coming Tuesday, August 13, at 2 p.m. Eastern.
It’s completely free to attend. All you have to do is save your seat, then mark your calendar.
