Bitcoin Under the Shadow of US Recession Fears: Market Volatility Amid Long-Term OptimismRecently, the global financial market has been shrouded in the gloom of a looming US recession. The release of the US PMI index, which has fallen into contraction territory for two consecutive months, coupled with the "Black Thursday" event on August 5th, has fueled panic among investors to sell off risk assets
Bitcoin Under the Shadow of US Recession Fears: Market Volatility Amid Long-Term Optimism
Recently, the global financial market has been shrouded in the gloom of a looming US recession. The release of the US PMI index, which has fallen into contraction territory for two consecutive months, coupled with the "Black Thursday" event on August 5th, has fueled panic among investors to sell off risk assets. The cryptocurrency market and US tech stocks have consequently experienced significant declines, with media outlets amplifying the "recession" narrative to further exaggerate price fluctuations.
The most affected are the US AI stocks that have seen the highest gains. As the most leveraged market capitalization sector, the market is currently aggressively shorting AI stocks. This short-selling force is so strong that it has even spilled over into cryptocurrency-related stocks and Bitcoin spot ETFs. For example, Coinbase stock has plunged from $240 to $150, dragging down mining stocks and other cryptocurrency-related stocks. This has eroded investor confidence in Bitcoin ETFs, leading to a decline in Bitcoin prices as capital flows out.
While the overall situation remains manageable and traders are not yet overly panicked, Bitcoin's price volatility has not been as dramatic as anticipated. Instead, it has shown a gradual downward trend, from an initial $64,000 to $62,000, then to $59,000, $57,000, and finally settling at a low of $53,300. Ether has also performed poorly, briefly dipping below $2,200, reflecting a gradual outflow of capital and a negative trading sentiment. The slow decline is the most painful stage of trading, and the market has entered this phase. User confidence is extremely low, and the possibility of a strong rebound in the near term is slim. Even a potential interest rate cut by the Fed might not be able to turn the tide, as the primary driver of the decline is a structural recession in trading sentiment rather than the mispricing of risk assets. The only hope lies in an aggressive interest rate cut by the Fed, but this is unlikely. The Fed is more likely to adopt a conservative rate cut strategy and observe more economic data.
Investor sentiment has shifted towards conservatism and caution, and we need to wait for more macroeconomic data releases in the short term. Last week saw the release of the August Manufacturing PMI index, the ADP employment report, and the August non-farm payrolls report. While the PMI index remained low, the ADP and non-farm payrolls data were not as bad as expected. Moreover, the US Manufacturing Index itself doesn't hold much significance for the US economy, which is largely driven by consumption. We believe this market sell-off is more orchestrated, with the underlying fundamentals unchanged. The primary goal is to create the illusion of an impending recession.
However, if the economy does slip into recession, the Fed is more likely to adopt a faster interest rate cut strategy. Currently, a one-percentage-point cut in September is expected, with subsequent cuts potentially occurring at a faster pace. Rates could potentially reach a neutral level of 3.5% within the next two years, formally exiting the restrictive rates imposed by the Fed in the face of high inflation. Bitcoin is bound to rise then. In the long term, Bitcoin remains bullish. Facing a recession, the Fed can always address the issue through loose monetary policy. American pockets are still well-lined, it's just a matter of whether they are willing to consume or invest. Overall, the monetary stock remains substantial. Bitcoin is currently undervalued, with a fair price of $70,000. However, it could potentially dip to $50,000 in the short term. Long-term investors can start accumulating positions now, taking advantage of potential sharp price drops in September. Avoiding leveraged trading is a wise strategy.
Continuing the previous narrative, market volatility will be highly unpredictable in the coming period, and interpretations of various metrics will vary significantly. Ultimately, the outcome will depend on which force is stronger. In the absence of an objective market standard, traders will find it difficult to bet on the same direction. For instance, the next data point is the August Consumer Price Index (CPI). Unless there are surprises, inflation will continue to moderate, and with the recent sharp drop in oil prices, inflation could even decline further. This could lead to a short-term rebound in Bitcoin prices, but sustained growth will depend on subsequent macroeconomic data. The bull and bear factors are too complex and unpredictable, making market trading significantly more challenging. Reducing leverage is a safer approach.
Compared to Ether, Bitcoin presents a better choice. Ether has recently lost capital due to declining staking return rates and misestimated the loss of transaction fee revenue stemming from the Ethereum Layer-2 airdrop craze. To benefit from the stimulating buying pressure driven by a significant interest rate cut, Bitcoin is a more stable investment option. If prices continue to decline, it will present a good entry opportunity.
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