Cryptocurrencies struggled to maintain upward momentum this week as the global stock market faces instability stemming from geopolitical events and economic figures. Macroeconomic events — such as the Bank of Japan raising interest rates, international conflicts, and fears of an imminent global recession — set off a chain reaction of panic across markets. This sense of unease amongst investors sparked a sell-off of perceived 'risk assets', including cryptocurrencies and tech stocks. However, there are signs that the market is beginning to stabilise as extreme leverage and positioning are being purged from the system, suggesting a calmer period is just around the corner.
Let's take a look at how major cryptos are faring this week and what traders can do to protect their gains and find opportunities in a difficult macroeconomic environment.
Traders watched with bated breath as crypto assets dropped at the start of the week before rising on Wednesday, only to fall again on Thursday. Bitcoin (BTC) experienced a sharp decline, dropping over 4% to around $58,000, triggering a broader downturn in the cryptocurrency market. Other major cryptocurrencies such as Ethereum (ETH), Solana (SOL), and Ripple (XRP) also saw losses, though slightly less severe, ranging from 2.5% to 3.8%.
The drop in Bitcoin's price occurred after the US released its Consumer Price Index (CPI) data for July. The CPI showed a 2.9% year-on-year increase, aligning with expectations, and marked the first time since 2021 that inflation had fallen below 3%. Despite positive reactions in the stock market, with the Nasdaq and S&P 500 closing in the green after an early sell-off, Bitcoin continued to decline.
Economic figures such as the US CPI, employment data, and interest rates have become key indicators to watch for crypto traders, even the diehard idealists who strongly wish to do away with the dominance of fiat currencies like the US dollar. Various analysts, from institutional investors to crypto community influencers, have acknowledged that cryptocurrency prices have become increasingly reactive to US economic data as investors seek safer assets over more volatile ones.
Some market observers predict that Bitcoin could fall further to around $55,000 in the short term before potentially rebounding. They point to significant downward pressure as over $1.4 billion in BTC options are set to expire on 16 August, potentially pushing its price below the $56,000 support level unless it recovers above $60,000. Others, however, point to signs of the Federal Reserve easing its monetary policy as a potential catalyst for Bitcoin to rise back up to $66,000.
In the ETF market, US-listed spot Bitcoin exchange-traded funds saw $81 million in net outflows on Wednesday, breaking a two-day streak of positive inflows. Grayscale's GBTC was the hardest hit, with $56 million in outflows, followed by Fidelity's FBTC, which lost $18 million. Ark Invest's ARKB and Bitwise's BITB also recorded losses of $6.7 million and $5.7 million, respectively. However, Franklin Templeton's EZBC and BlackRock's IBIT bucked the trend, posting a combined $6 million in inflows.
Ether ETFs performed better, with $10 million in net inflows, continuing a three-day positive streak. BlackRock's ETHA led the gains with $16 million in inflows, while Grayscale's ETHE saw $16 million in outflows. Other Ether products, including Grayscale's mini Ether trust, Fidelity's FETH, and Bitwise's ETHW, collectively gained $11 million in inflows.
One positive sign for the health of the crypto market is the recent news that finance giant Goldman Sachs revealed in a recent 13F filing that it holds over $400 million in Bitcoin ETFs, despite earlier scepticism about cryptocurrency. The bank owns positions in seven out of the 11 BTC ETFs available in the US, with its largest investment being $238.6 million in the iShares Bitcoin Trust (IBIT). This shift in strategy marks a significant change, as Goldman Sachs had previously stated that it did not consider crypto a viable investment asset.
Volatility, the likes of which we have seen this week, is nothing new to seasoned crypto traders but may be disturbing to newbies who are just coming to grips with the unpredictability of markets. As experienced traders with spare assets to play with will buy on dips and sell on rallies, a conscientious crypto trader should plan for a five- to ten-year investment horizon and not become too emotionally invested in daily price fluctuations.
The history of crypto market cycles over the past 14 years has still managed to deliver unprecedented returns for crypto investors, while long-term trends like the 200-week moving average can provide a better perspective on a token's overall health than daily movements.
Bitcoin, Ethereum, and major altcoins have already bounced back from the 30%+ drawdowns they saw as panic gripped the markets last week. For savvy traders, these dramatic dips presented attractive buying opportunities.
Trading during periods of volatility is a game of buying at lows and selling at peaks, and getting caught up in investor panic can trap you into doing the exact opposite! Instead, try to assess whether the reasons behind a price drop undermine your original investment thesis. If the fundamentals remain intact, then it may be time to buy the tip and enjoy the potential for greater returns in the future.
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