The Bitcoin market experienced a major downturn earlier this week attributed to concerns regarding the US economic outlook and increased volatility in the broader financial markets. Notably, Ethereum’s performance lagged, potentially influenced by heightened futures market activity and selling pressure from select large holders.
Despite these challenges, asset manager and exchange-traded fund (ETF) issuer Grayscale remains optimistic about the potential for token valuations to rebound if the US economy continues on a trajectory toward a “soft landing.” Even in a scenario of economic weakness, Grayscale suggests that the downside risk to cryptocurrency prices may be more contained compared to previous instances.
Unpacking The Factors Behind BTC & ETH’s Declines
According to a recent research by the asset manager, the catalyst for the recent market contraction was the release of a disappointing US employment report for July, published on August 2.
This report revealed an increase in the unemployment rate, reminiscent of patterns seen in past recessions. Consequently, concerns about a potential economic downturn led to diminished performance in cyclical assets like equities, while traditional safe-haven assets such as US Treasury bonds, the Japanese Yen, and the Swiss Franc saw increased demand.
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Within the crypto market, both Bitcoin and Ethereum experienced significant declines, with Ethereum notably underperforming other digital assets and traditional market segments, partly attributed to significant long positions in perpetual futures, which were liquidated during the downturn, exacerbating the price decline.
Furthermore, the market witnessed a sudden 7.6% drop in Ethereum’s price over a brief three-minute window on August 4, with liquidations totaling $340 million on that day alone.
Factors contributing to Ethereum’s underperformance included selling pressure from prominent holders like Jump Crypto, Paradigm, and the Golem Network, alongside shifts in Ethereum’s staking reward rate and validator activity.
The Bitcoin Path To $100,000
As broader financial markets stabilized in the past week, the VIX index, a measure of US equity market volatility, exhibited a notable decrease after peaking earlier in the week, Grayscale noted.
Market stability moving forward hinges on forthcoming macroeconomic data, corporate earnings releases, and potential policy responses from central banks like the Federal Reserve.
Looking ahead, Grayscale anticipates that if the US economy avoids a recession and maintains a path towards a controlled slowdown, token valuations could recover, with Bitcoin potentially retesting its previous all-time high.
The firm also highlights factors such as steady demand from newly listed US ETFs, limited credit exposure from central financial institutions, and subdued altcoin returns as potential stabilizing influences on the market.
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Similarly, market analyst CryptoCon claims that the 3.618 Fibonacci extension has accurately found every local high in the current market cycle, with an expected 52% increase and the .618 extension set to push over the $100,000 milestone.
CryptoCon notes that if the “1-month-behind 2023” continues, over $100,000 by the end of the year could be in the making for the largest cryptocurrency on the market after the retracements of the past few months.
At the time of writing, BTC is struggling to hold consolidation above the key $60,000 level, falling nearly 1% from Thursday’s high of $62,8000 to trade at $59,970.
Featured image from DALL-E, chart from TradingView.com