Kathleen Breitman, the co-founder of the Tezos blockchain, says Bitcoin’s narrative as a store of value is “being decimated” amid the latest crypto crash.
The Tezos (XTZ) co-founder shared the viewpoint in an interview with CNBC’s ‘Squawk Box’ on Aug. 5, commenting on the crypto market reaction as Bitcoin (BTC) plunged to under $50,000.
According to Breitman, Bitcoin’s price plunged as investors and traders reacted to broader market jitters. Catalysts to this flip in sentiment include fears of a potential global recession, with the crash in Japan’s stocks exacerbating the situation across the market on Monday.
Tezos co-founder comments on BTC sell-off
Analysts also attributed the market’s tumble on Aug. 5 to geopolitical tensions and the Federal Reserve’s recent interest rate decision. In crypto, rumors of massive selling by Jump Trading injected new downside pressure.
It’s the crypto reaction that has Breitman not mincing her words about BTC as “internet pretend money.”
“Basically, what we are seeing is something similar to what happened at the beginning of COVID, where folks get a sense of something that looks like a recession and the first thing they decide to sell is their internet pretend money,” Breitman said.
Not a ‘store of value’
Breitman added that BTC is getting “a bit of a shellacking” as it remains a largely speculative currency and that most holders still don’t see it as anything more.
“It’s good to acknowledge that it’s an experiment,” Breitman told CNBC’s Andrew Sorkin and Joe Kernen. As for Bitcoin being a store of value, the Tezos co-founder said she’s yet to buy into that narrative, which she added was a meme currently “being decimated.”
Despite this view, Breitman says Bitcoin is a core asset in the market and will grow as it becomes more mainstream. BTC has core utility and does not need to be a store of value asset to be useful, she added.
Bitcoin is down double digits
While the digital gold has rebounded slightly to above $50k, its value remains 17% down in the past 24 hours and more than 28% in the red over the past week. Elsewhere, it’s a sea of red for crypto as 24-hour liquidations rose to over $1 billion.
Notably, Bitcoin and stocks’ declines contrasted with the performance of gold, which largely held its value as the market got smashed.
Meme coins are imploding in a high-volume environment as the closely watched crypto fear and greed index slips to the fear zone.
The total market cap of all cryptocurrencies slipped by 25% in the past 24 hours to $29.8 billion. At their peak earlier this year, these tokens had a market valuation of over $63 billion, meaning that investors have lost $33.8 billion.
Dogecoin, Shiba Inu, Pepe and other meme coins are slumping
Dogecoin (DOGE), Shiba Inu (SHIB), Pepe (PEPE), Dogwifhat (WIF), and Bonk (BONK) crashed by over 23% on Monday. Other popular tokens like Floki (FLOKI) fell by more than 30%.
The meme coin sell-off happened in a high-volume environment, as many traders liquidated their positions. Data shows that the 24-hour volume rose by 170% to over $9.72 billion.
At the same time, their open interest in the futures market continued falling. Pepe’s open interest stood at over $93.61 million, down from last month’s high of $146 million. Dogecoin’s open interest also fell to $536 million after peaking at over $757 million in July.
The futures open interest of other meme coins like WIF, Bonk, and Shiba Inu also continued falling.
In most cases, meme coins are more volatile than Bitcoin since they are usually held by retail traders seeking quick returns. These traders pump them higher when Bitcoin is rising and then dump them when it is in a steep downward trend.
They also underperform the broader market when the fear and greed index is in the fear zone. This index retreated from over 90 earlier this year to the fear level of 35 as sentiment in the crypto industry continued to sour.
Still, there are a few positives to remember. First, this is not a crypto-specific sell-off; the stock market is also retreating. Nvidia, one of the largest companies in the world by market cap, dropped by over 14% on Monday while Apple, one of the most recognized brands in the world, was down more than 5%.
Therefore, since stocks always rise in the long term, there are chances that cryptocurrencies will rebound when this happens. Second, meme coins could benefit if the Fed starts to cut rates as inflation odds rise.
Additionally, meme coins have become severely oversold, which could lead to a rebound in the coming weeks. Pepe’s Relative Strength Index has moved to the oversold level of 25 while the Percentage Price Oscillator has remained in the red area for the past six consecutive days.
Similarly, Dogecoin’s RSI has moved to 24 while the MACD and the PPO have moved to oversold levels. The same is true among other tokens like WIF and Popcat.
When an asset is oversold, it has two implications: the sell-off could continue due to the momentum, or it could bounce back as investors buy the dip.
Traditional finance has produced many good things, like near-instant payments, intuitive mobile apps, etc. But on the flip side, its centralized and siloed infrastructures have created deep financial inequalities across geographical and cultural lines. Roughly one percent of the world’s population owns over $87 trillion in financial assets, i.e., over 43% of the total global financial wealth. More than 63% of their wealth is in financial assets compared to 37% for the majority.
Blockchain can fix this. Grassroots inclusion is the ethos of decentralized wealth-generation protocols and financial networks. But we mustn’t take it for granted. Especially when legacy players like Blackrock, VanEck, etc., are entering the space with a range of centralized products and ETFs.
Institutions wield a two-edged sword
Besides macroeconomic factors like moderating inflationary pressure, exchange-traded funds (ETFs) have been crucial in bringing the bulls back to crypto. The optimism around such developments is understandable. Exposure to blockchain-based digital assets through familiar instruments could provide mainstream users with a stronger impetus to join.
Could this be the inflection point we’ve been chasing all these years? Yes. Given we don’t inherit persistent problems like high barriers to wealth generation and optimize for inclusion instead.
One needs a minimum of $2 to $5 million in investable assets to access wealth management firms in the US. Whereas big fund managers like Blackrock exclusively serve high-net-worth individuals with portfolios above $100 million. Only the global financial elite can meet either of these criteria.
It’s unlikely that offering crypto-related products will automatically make established institutions more inclusive. Because the roots of exclusionary business models run deeper than this or that company’s policies or intent.
Widespread information disparity is inherent to the very structure—centralized and siloed—of traditional financial systems. This evolved over decades and led to an uneven playing field that’s rather challenging to fix. In fact, most attempts at finding viable solutions within legacy financial paradigms have failed so far. For example, the STOCK Act couldn’t stop insider trading by members of the US Congress. No Member of Congress has been penalized under this Act to date, mainly because it’s very challenging to determine the scope of ‘material information’ affecting a given trade, despite centralized ledgers.
There’s no way such half-baked approaches to ensure a level playing field would work in the user-centric and pseudonymous world of blockchains. However, the underlying tech has unique capabilities to provide equal access for all while supporting fairness natively.
Wealth and financial freedom for all
Blockchain is one of the strongest wealth and access equalizing technologies since the Internet. It brings novel revenue streams and investment instruments directly to the average user. The peculiar dynamics of the ongoing market cycle are making this clearer than ever. As Mike Mallazo recently wrote:
“The real egalitarian appeal to crypto is not that it will democratize payments—but that a wintergreen ZYN-fueled degenerate in his mom’s basement can outperform an MIT-trained quant who spent a decade at Goldman.”
Institutions have forerun retail users on certain flanks so far. Parallelly, however, grassroots users are also generating life-changing wealth through memecoins, etc. For example, a trader recently turned $2,275 into $2.6 million in about eight hours (not financial advice). It’s rather common these days.
This has been possible because the entry barriers are very low and almost non-existent. Anyone can start their wealth generation journey with as little as they want. No gatekeepers. No questions. No minimum income requirements. The degen and the prince are practically on the same plane.
Unlike tradfi systems, blockchain-powered financial networks truly offer the underdogs a substantial and fair chance to rise. More so with advanced wealth-generation protocols where an average user can make millions investing alongside top asset managers.
The emerging social investing paradigm unlocks a meritocratic environment where seasoned investors and amateurs can benefit mutually. While the former can monetize their battle-tested strategies, the latter gets a stress-free means to profit.
It’s also possible to build accessible wealth management systems that support a wide range of asset classes, including meme coins, defi, NFT, RWA, etc. This will further democratize the space and unleash financial opportunities available only to the wealthy elite.
No matter who or where they are, everyone can become financially free using blockchain-powered tools. Users are the biggest winners in this shift. That’s fairness epitomized.
Last but not least, robust blockchain-native infra is the way to offset the potential negative impact of widespread institutional adoption. We will fully leverage the upsides of greater institutional participation only when decentralized, community-oriented systems are equally strong.
It’s a battle of narratives and perceptions, where crypto’s core voice must ring louder than those trying to misuse the tech for selfish interests. ETFs, etc., can bring new users, and that’s great. But native protocols and their communities must set the standards. We mustn’t repeat the historic mistake of exclusion.
Worldcoin, the ambitious brainchild of Open AI CEO Sam Altman and two of his partners, has been marred by controversies since it debuted in late July last year.
The idea was simple: establish a global digital ID system, introduce a global currency, in this case, Worldcoin token (WLD), and develop the World App, a universal wallet that leverages World ID to facilitate payments.
When the project launched, the initial reception was divided. On the one hand, privacy advocates and regulators across several jurisdictions argued that collecting biometric data on such a large scale poses many risks. On the other hand, the project managed to draw in over 2 million users who signed up for a digital ID during its initial rollout phases.
The regulatory pressure prompted Worldcoin to implement the Secure Multi-Party Computation system that encrypts the scanned iris data into secret shares to be distributed among multiple parties in a bid to address concerns about data centralization.
At the time of publication, the project was banned in some countries, while others were investigating its data collection practices.
Despite the mixed reception, the project had 119 ‘orbs’ – a spherical device that scans a user’s iris—across 18 countries within the first few months and now plans to expand that number to 1500 globally. Meanwhile, the World App has raked in over 10 million users.
While Worldcoin’s approach to decentralized identity shows promise, there are ongoing debates about whether it truly tackles the broader issues at play.
Speaking to crypto.news, Sebastian Rodriguez, chief product officer at decentralized identity platform Privado ID, said that while Worldcoin’s use of cryptographic techniques is commendable, the broader issues of governance and transparency remain unresolved.
What are your thoughts on Worldcoin’s biometric data collection efforts?
Worldcoin has recently announced that they will delete all the biometric data and distribute it in a MPC network. This removes one of the major concerns about data concentration from the technical point of view. Worldcoin also uses nullification to protect the user against cross-application tracking, so technically speaking, we consider the new Worldcoin approach technically secure.
Do you see any shortcomings with the project’s current approach to security?
Security is more complex than its technical component – it’s a property of the entire solution (technology, people, processes and power structures). In our opinion, Worldcoin is using many of the right cryptographic primitives to achieve privacy and security, but they are not following the principles of decentralization and transparency that most Web3 projects embrace. They have made efforts to open source most of their technologies (including hardware to a certain degree), but the governance of the project, its long-term goals and tokenomics are still a source of concern.
Basically, their model only works if they become a monopoly for proof of uniqueness – this is a type of credential (when it’s based on non-standard biometric templates) that can only be provided by a single provider. It’s not based on national ID documents (that would allow for multiple providers of Identity Verification) but on a non-standardized biometric hash database controlled by a single private organization.
Worldcoin claims that Secure Multi-Party Computation will enhance data privacy and security by distributing biometric data across multiple parties. Do you believe this approach can effectively address the ethical concerns?
No. Technical security should never stop the ethical debate around the implications of a unique identifier that can’t be changed for my entire life. This is an identifier that I can’t deny to have; I can be forced to present, and I can’t change. The implications are deep and, in some cases, dangerous.
Despite the controversies, Worldcoin has garnered considerable attention. What do you think is driving its appeal?
Every tokenized project is susceptible to speculation, and Worldcoin is no different. They are also linked to Sam Altman and OpenAI, which has a “winner” aura that, in my opinion, has attracted controversy and investor interest at the same time. There is a sentiment that OpenAI is investing in a problem they are helping to create (synthetic identities) that is both ethically reprehensible and economically attractive.
Can identity verification systems be enhanced in security and efficiency while minimizing reliance on biometric data?
Biometrics is at the core of all identity systems, even National ID and Passports. It’s not about the technology, but about who is the source of trust and how centralized it is. We believe that governments should play that role, and with projects like EUDI [the European Unitons’s digital identity solution] it’s going to become more available for many citizens. Some alternatives are based on networks of trust (social graphs, p2p vouching, etc.), but none of these has seen mass adoption so far.
From your experience at Privado ID, what are the key considerations for creating identity solutions that align with international data protection standards?
We advocate for open ecosystems of interoperability. Centralizing everything in a single identity provider is always tempting (faster, easier, simpler) – but we need to allow for a healthy open ecosystem of competing and local identity providers that avoid concentration of power, provide choice and alternatives, and can also adapt to local regulations. As an example – it is very tempting to add Age Verification to our Google or Apple accounts and have the verification done by our phones or e-mail accounts. But that will give these companies huge databases of every place where we use these credentials. It will probably also not be fully compliant to every single local regulation about the topic. Having an ecosystem of Age Verification providers with interoperable credentials is better.
How does Privado ID approach the challenge of creating open ecosystems and ensuring interoperable credentials within its platform?
We want to provide the underlying infrastructure to build and support open ecosystems of interoperable credentials. We are not in the business of providing these credentials – we aim to provide identity providers and users the best channels to exchange and monetize credentials in the most privacy preserving way and with the best user and developer experience. We see ourselves as a marketplace of trusted data where consumers (applications) and providers (credential issuers) can connect, integrate and make business, all while respecting the user’s privacy and right to consent.
Real-world asset startup Zoth has raised $4 million in a strategic round to launch its Tokenized Liquid Note, featuring assets like U.S. Treasury Bills and corporate bonds.
Zoth, a decentralized finance real-world assets startup, has secured a $4 million strategic round to advance its efforts in launching digital versions of traditional fixed-income instruments on the blockchain.
In an Aug. 5 press release shared with crypto.news, the Singapore-headquartered startup said the funding was backed by Taisu Ventures, G20, Fat Cat Ventures, GemHead Capital, and Foundership Ventures, among others.
Zoth CEO Pritam Dutta commented on the funding, stating that the team is trying to build a “one-stop crypto yield layer solution for sustainable yield by harnessing onchain permissioned RWAs and permissionless defi fixed-yield products.” So far, the startup has deployed $13 million in private credit, with over $100 million originated and $200 million in the pipeline, the press release reads.
Crypto business bets on RWA
Founded in 2023 by Pritam Dutta and Koushik Bhargav, Zoth aims to become a chain-agnostic crypto yield layer, providing institutional and accredited investors with easy access to secure and sustainable fixed-income yield products onchain.
In addition to the latest funding, the startup earlier also raised $2.5 million in a seed round led by Blockchain Founders Fund alongside other backers such as Borderless Capital, Mindfulness Capital, YAP Capital, Singularity DAO, and Wormhole. In June, Ripple’s XRPL Accelerator included Zoth in its list of 18 startups to help them scale their projects on the XRP Ledger.
Beyond Ripple, Zoth has also collaborated with other partners such as Chainlink, Celo, XDC, and Funfair Ventures to bridge liquidity across traditional finance and defi.
It was a sea of red in the crypto market on Monday as the fear and greed index moved to the fear zone of 35, with most tokens falling by over 20%.
Bitcoin (BTC) plunged by 17% in the past 24 hours while other notable coins like Pepe (PEPE), Ethereum (ETH), Solana (SOL), and Notcoin (NOT) performed even worse. Altogether, the market cap of all cryptocurrencies has dropped from almost $3 trillion in March to $1.8 trillion.
Crypto outlook seems bearish
The outlook for Bitcoin and other coins seems highly bearish, with Bitcoin forming a series of lower lows and lower highs. It has even moved below the lower side of the falling broadening wedgepattern.
Technically, Bitcoin has moved below the 50-day and 200-day moving averages, meaning that bears are in complete control.
Further, crypto investors have turned fearful, with the fear and greed index dropping to the fear zone of 35. In most cases, cryptocurrencies drop when there is a sense of fear in the market.
Additionally, crypto liquidations have soared, crossing over $1 billion on Monday. Bearish volume has also risen across the biggest crypto exchanges.
This trend is happening for several reasons. The biggest one is that the Bank of Japan is moving in the opposite direction from other central banks like the Bank of England and the European Central Bank.
Further, the US presidential election is much tighter than before, and there are rising odds that Trump will not win the election. Trump is seen favorably among crypto investors.
The bull case for Bitcoin and altcoins
Still, a bull case can be made in the crypto market. Goldman Sachs has raised its recession oddswhile the Sahm Rule index has risen to 0.53. The Sahm Rule looks at the average unemployment rate in the US over 12 months.
Odds of a recession rise when the Sahm Rule moves above 0.50%. Recent data shows that it has risen to 0.53%, meaning that a recession could happen.
BREAKING: The Sahm Rule recession indicator surged to 0.53 in July from 0.43, suggesting the US economy is in a recession.
The Sahm Rule signals a downturn once the unemployment rate increases 0.5 percentage points above its previous 12-month low.
Ironically, stocks and cryptocurrencies do well during a recession because of the Federal Reserve. If a recession happens, the Fed will likely cut interest rates at a quicker rate than expected. Polymarket traders anticipate a jumbo rate cut of 0.50% in September while ING analysts see four cuts this year.
Such cuts would have an enormous impact on the market since investors have allocated $6.1 billion in money market funds, where they are earning about 5%. When rates start falling, these investors will likely move funds to riskier assets like stocks and crypto.
We saw this happen during the COVID-19 pandemic when stocks jumped after the Fed slashed interest rates to zero.
There are a few reasons for the ongoing crypto sell-off. However, the most important one is the ongoing winding down of the Japanese yen carry trade after the country’s central bank hiked interest rates by 0.25% last week.
This was an important decision since Japan has a history of maintaining low interest rates. Most recently, it was the last central bank to exit negative interest rates.
It was also a crucial decision because it came as other central banks are considering rate cuts. The Bank of England, European Central Bank, and Swiss National Banks have all slashed rates while the Fed has hinted that it will cut in September.
Therefore, traders are winding down a carry trade that has existed for years. A carry trade happens when investors borrow from low-interest-rate countries to invest in higher rate countries. Over the years, borrowing from Japan and investing in the US has been a great trade.
Bitcoin, Ethereum, and other altcoins dropped after polls showed that Kamala Harris has a higher chance of beating Donald Trump. While Polymarket has Trump with a 53% chance of winning, Kamala has narrowed his lead in the $500 million bet. PredictIt has Kamala Harris beating Trump.
They have also dropped because of the ongoing geopolitical issues in the Middle East, rising chances of a US recession, and weak technicals.
Peter Schiff blasts Ethereum and Bitcoin ETFs
In a series of X posts, Peter Schiff, a well-known crypto bear and gold bull, warned that Bitcoin and Ethereum Exchange Traded Funds could have a liquidity crisis on Monday.
He argues that the ETFs will have to account for the weekend losses and those happening on Monday. As a result, if ETF investors sell, then liquidations would overwhelm the spot market.
#Bitcoin just sank below $58K. If it takes out it’s July low by tomorrow’s U.S. #StockMarket open, #BitcoinETFs will gap down by more than 15%, 30% below their Jan. highs. A loss of that magnitude may finally trigger mass ETF liquidations. If so, brace for a #Crypto black Monday.
Peter Schiff has a long history of being negative on Bitcoin and Ethereum, which he believes are worthless assets. However, historical data shows that the two assets have outperformed gold – his favorite asset – by far.
Despite the ongoing sell-off, Bitcoin has risen by 21% this year while gold is up by 15%. In the last five years, BTC has risen by 360% while gold is up by less than 80%.
As the price of ETH dropped over 20% on Aug. 30, hackers were seen leveraging the opportunity to buy the dip using stolen crypto.
According to blockchain security firm PeckSheild, the perpetrators behind the 2021 hack on Binance Smart Chain-based defi protocol Pancake Bunny bought 2.922K ETH for 7.8M DAI.
#PeckShieldAlert Our community contributor has detected that the #PancakeBunny exploiter-labeled address aped into $ETH when the market dropped. The exploiter swapped 7.8M $DAI for 2.922K $ETH. On May 19, 2021, PancakeBunny’s Bunny Protocol fell victim to a flash loan attack,… pic.twitter.com/wACNvYk0Rn
The defi protocol was exploited in a 2021 flash loan attack, in which $46 million worth of its tokens were siphoned off and swapped for tokens like BNB, USDT, and DAI. The attack caused the price of the project’s native token, BUNNY, to crash.
Last month, the exploiter’s address returned from dormancy and transferred 1,002 Ether to crypto mixer Tornado Cash. The service allows bad actors to make tracing of funds difficult for authorities.
At the time, the attacker’s wallet reportedly held $11.4 million of Dai (DAI).
Similarly, the attackers behind the $200 million hack of cross-chain token bridge Nomad have also acquired ETH, according to analytics firm Lookonchain.
Nomad Bridge allowed users to send funds across multiple blockchains. The attack stemmed from a vulnerability in the smart contract where tokens sent via the bridge are initially deposited.
On August 30, 2024, the attacker spent 39.75 million DAI to acquire 16,892 ETH before moving them through Tornado Cash in a series of transactions for 100 ETH each. In total, the attacker moved approximately 2400 ETH to the privacy mixer.
Over the years, the attacker has moved the stolen assets on multiple occasions, with over $1.5 million laundered via Tornado Cash in January 2023. Prior to that, $7.5 million was moved to an unknown address.
As of publication time, one of the Nomad bridge attacker’s wallets held just over 14,500 ETH valued at over $33 million.
The recent moves come as ETH recorded its largest drop in 2024, presenting a lucrative buying opportunity. According to analysts, the cryptocurrency has lost key support levels, and the price is expected to dip even further.
The price drop came as the broader crypto market saw over $1 billion in liquidations recorded in 24 hours.
What are the immediate global triggers that have led to this massive crypto market crash? Read on
Table of Contents
The crypto market has crashed brutally, sending shockwaves through the financial world. As of August 5, the global crypto market cap stands at $1.81 trillion, a staggering 15.88% decrease in just one day, triggering extreme panic and strong indications of a bear market.
Bitcoin (BTC) has plummeted over 25% in the last seven days, with nearly 15% of that decline occurring in the last 24 hours, trading at $51,300 levels as of August 5.
BTC price chart | Source: TradingView
Ethereum (ETH) has fared even worse, falling by 32% in the last week and over 21% in the past day, trading at $2,238 levels as of this writing.
ETH price chart | Source: TradingView
Other altcoins have been hit hard, too, dropping between 40-50% over the week and 15-25% in the last 24 hours.
The turbulence isn’t limited to the crypto market. Major global stock indices like NASDAQ100 (U.S.), FTSE100 (UK), and NIFTY50 (India) have seen sharp declines of 2-3% in a single trading session.
Japan’s Nikkei225 took the worst hit, plunging nearly 14% in one day, marking its steepest decline since 1987.
So, why is crypto crashing right now? What are the global triggers causing this widespread panic and dragging down all financial markets? Let’s delve into the underlying reasons behind this market turmoil.
What happened to crypto market: decoding the factors
U.S recession fears
The crypto market’s recent crash isn’t happening in isolation. The U.S. job market is showing signs of trouble, which is fueling fears of a recession.
According to data released on August 2, the unemployment rate jumped to a nearly three-year high of 4.3 percent in July, up from 4.1 percent in June and a stark increase from a five-decade low of 3.4 percent in April last year.
Economists from Goldman Sachs have increased the probability of a recession in the U.S. next year to 25 percent from 15 percent, Bloomberg reported.
Despite this, they noted there are “several reasons not to fear a slump,” even with the jump in unemployment. According to Goldman economists, ‘The economy continues to look fine overall, there are no major financial imbalances and the Fed has a lot of room to cut interest rates and can do so quickly if needed.’
However, there are also concerns that the Federal Reserve may have “waited too long” to cut interest rates. The Goldman report suggests that if job growth recovers in August, a 25 basis points (bps) cut would be sufficient to address any downside risks. But if the August employment report is as weak as July’s, a 50 bps cut might be necessary in September.
The rising unemployment and potential recession fears are creating a ripple effect. Investors are becoming more risk-averse, moving away from volatile assets like crypto, leading to massive sell-offs in the crypto space.
When people fear a recession, they tend to sell off riskier investments and hold onto safer assets like cash, gold, or government bonds.
Nikkei 225 crash
Japan’s financial system is undergoing some critical changes, and these shifts are having a ripple effect on markets worldwide.
On July 31, Japan’s central bank raised its benchmark interest rate to “around 0.25%” from its previous range of 0% to 0.1%. This was the second time this year that the Bank of Japan (BoJ) increased rates, the first being on March 19, marking the first rate hike since 2007.
While this move is aimed at benefiting Japan’s economy, it has an adverse impact on carry trade, a popular strategy among forex traders and fund managers.
Carry trade involves borrowing money in a currency with a low-interest rate and investing it in assets that offer higher returns. When Japan raises its interest rates, it makes the yen more attractive for borrowing, disrupting this strategy and causing global financial adjustments.
The effect of Japan’s rate hike was immediately felt. The Nikkei 225 stock index plunged 12.4% on August 5, marking a widespread sell-off.
One of the factors driving the BoJ to raise rates was the prolonged weakness in the Japanese yen, which has pushed inflation above the central bank’s 2% target.
Early on August 5, the dollar was trading at 142.59 yen, down from 146.45 late Friday and sharply below its level of over 160 yen a few weeks ago.
The market sell-off in Japan is not occurring in isolation. Stocks began tumbling globally on August 2 after weaker-than-expected data on U.S. jobs sparked worries that high interest rates might push the U.S. economy into a recession.
This anxiety is compounded by Japan’s rate hike, which adds another layer of complexity to the global financial picture.
The current scenario, where both U.S. and Japanese markets are showing signs of stress, is causing investors to reassess their positions. As a result, there is a massive sell-off in riskier assets, including cryptocurrencies.
Geopolitical woes
Geopolitical tensions are another major factor impacting the crypto market. On August 3, tensions in the Middle East escalated as Iran and its allies prepared their response to the assassination of Hamas leader Ismail Haniyeh in Tehran, an act they blamed on Israel.
This followed the killing of Hezbollah’s military chief in Beirut, prompting vows of vengeance from Iran and the ‘axis of resistance’, which raised fears of a regional war.
Meanwhile, the U.S., an ally of Israel, announced it would move warships and fighter jets to the region. Western governments urged their citizens to leave Lebanon, where the powerful Iran-backed Hezbollah movement is based, and airlines canceled flights.
Iran-backed groups from Lebanon, Yemen, Iraq, and Syria have already been drawn into the ongoing conflict between Israel and the Palestinian militant group Hamas in Gaza.
The fear of a regional war and its potential global implications can lead to massive sell-offs in the crypto market as investors seek stability. Geopolitical instability often causes heightened volatility in both traditional and crypto markets.
What’s next?
As the crypto market continues to tumble, let’s explore the insights of some prominent figures in the industry and analyze their perspectives on the situation.
Alex Krüger, a well-known macroeconomist, suggests that the current debacle is driven more by macroeconomic factors rather than issues specific to crypto.
Krüger argues that the policy mistake wasn’t the Fed not cutting rates quickly enough, but rather the Fed not cutting rates while Japan hiked theirs, creating a financial crisis spurred by levered Japanese speculators, which, according to him, is a less severe scenario than a crisis caused by a U.S. recession.
This debacle is obviously macro driven, rather than crypto specific. And it is becoming apparent the main driver is not the US economy collapsing (recession talks spiked post payrolls last Friday).
It seems the policy mistake was not the Fed not cutting fast enough, but rather… pic.twitter.com/PjTU7v2ZUY
Meanwhile, Justin Sun, the founder of Tron (TRX), remains optimistic despite the market downturn. He suggests that the industry has grown over the past year and that the current market fluctuations aren’t due to negative news.
Don’t worry! The industry has grown significantly over the past year, and this market fluctuation isn’t due to negative news. We should reject FUD and keep building. That’s why we’re creating a $1 billion fund to combat FUD, invest more, and provide liquidity. 🙏
In these turbulent times, you should exercise caution and stay informed. Diversify your portfolio to mitigate risks and avoid putting all your eggs in one basket.
Consider setting stop-loss orders to protect your investments from further decline. Don’t make impulsive decisions based on fear or market hype, and never invest more than you can afford to lose.
