Key Points
- Most cryptocurrencies, including Bitcoin (BTC) and Ethereum (ETH), experienced significant drops on Monday due to market fear.
- The overall market cap of cryptocurrencies has fallen from nearly $3 trillion in March to $1.8 trillion.
The cryptocurrency market faced a significant downturn on Monday. The fear and greed index indicated a shift towards fear, with a score of 35, and most cryptocurrencies saw a drop of over 20%.
Bitcoin (BTC) saw a 17% drop in the last 24 hours. Other prominent cryptocurrencies like Pepe (PEPE), Ethereum (ETH), Solana (SOL), and Notcoin (NOT) also saw substantial losses. The total market capitalization of all cryptocurrencies fell from nearly $3 trillion in March to $1.8 trillion.
Bearish Outlook for Cryptocurrencies
The future for Bitcoin and other cryptocurrencies looks bearish. Bitcoin has been forming a pattern of lower lows and lower highs and has even slipped below the lower side of the falling broadening wedge pattern.
Technically, Bitcoin has fallen below the 50-day and 200-day moving averages, indicating that bears currently dominate the market. Cryptocurrency investors have also become fearful, with the fear and greed index dropping to 35. Typically, cryptocurrencies experience a drop when fear permeates the market.
Crypto liquidations have also skyrocketed, exceeding $1 billion on Monday. Bearish volume has increased across major crypto exchanges. This trend can be attributed to several factors, including the Bank of Japan’s contrasting stance to other central banks like the Bank of England and the European Central Bank.
The US presidential election’s tight race and the increasing likelihood of Trump not winning the election also contribute to this trend. Trump is generally viewed favorably by crypto investors.
Potential Bullish Scenario for Cryptocurrencies
Despite the bearish outlook, there is still a potential bullish case for the crypto market. Goldman Sachs has increased its recession odds, and the Sahm Rule index, which looks at the average US unemployment rate over 12 months, has risen to 0.53. When the Sahm Rule exceeds 0.50%, the odds of a recession increase. Recent data indicates that it has risen to 0.53%, suggesting a potential recession.
Interestingly, stocks and cryptocurrencies often perform well during a recession due to the Federal Reserve’s actions. If a recession occurs, the Fed is likely to cut interest rates faster than anticipated. Traders on Polymarket anticipate a significant rate cut of 0.50% in September, while ING analysts foresee four cuts this year.
Such rate cuts could significantly impact the market. Currently, investors have allocated $6.1 billion in money market funds, where they are earning approximately 5%. If rates begin to drop, these investors may likely shift their funds to riskier assets like stocks and cryptocurrencies. This trend was observed during the COVID-19 pandemic when stocks surged following the Fed’s decision to slash interest rates to zero.
