Cryptocurrency prices rose for the fourth consecutive day as concerns about a US recession faded after encouraging jobless claims data.
It was a sea of green as Bitcoin (BTC) and most altcoins, which have risen by over 30% from their lowest point this week.
US inflation report ahead
One of the main catalysts driving the recent crypto and stock rally was the US jobless claims report on Aug. 8. According to the Bureau of Labor Statistics, the number of claims dropped to 233,000 in the prior week. A week before that, the claims rose to 250,000, the highest level in months.
These numbers came a week after the non-farm payrolls report showed that the jobless rate rose to 4.3%, the highest level since 2021.
Therefore, Aug. 15 will be important for the crypto industry as the US will publish the latest Consumer Price Index (CPI) report. Economists polled by Reuters expect the data to show that the headline CPI dropped from 3.0% to 2.9% in July. The core CPI, which excludes volatile food and energy prices, is expected to drop from 3.3% to 3.2%.
Bitcoin and altcoins could benefit from Fed cuts
A sign that inflation is falling will benefit Bitcoin and altcoins because of its impact on the Federal Reserve.
In its monetary policy meeting in July, the Fed hinted that it would consider cutting rates in its September meeting. Analysts are now divided on whether the first cut will be 0.25% or a jumbo 0.50%.
Some, like those from ING Bank and Citi, expect a 0.50% cut while others from Goldman Sachs and Societe Generale see a 0.25% reduction. A Polymarket poll also predicts several rate cuts this year.
Cryptocurrency prices tend to do well when the Federal Reserve is cutting rates. The most recent example is in March 2020 when the Fed slashed the official cash rate to zero due to the pandemic. In the aftermath, Bitcoin rose to a record high of $69,000 in 2021.
Before that, Bitcoin rose by 90% in 2019 as the Fed cut rates in July, September, and October. Conversely, Bitcoin dropped by 65.2% in 2022 as the Fed hiked rates, with other altcoins faring even worse.
One reason why cryptocurrencies might do well when the Fed starts cutting rates is the significant amount of money in the bond market. Money market funds currently hold over $6.2 trillion, where investors are earning over 5% annually.
When rates start falling, these funds will likely shift to riskier assets like stocks and cryptocurrencies.
The Federal Reserve has imposed strict oversight and compliance measures on Customers Bancorp, Inc., and its subsidiary, Customers Bank.
The action follows a recent examination by the Federal Reserve Bank of Philadelphia, which uncovered significant deficiencies in the bank’s risk management and compliance practices, particularly in relation to anti-money laundering laws and the Bank Secrecy Act.
“Customers was one of the biggest pro crypto banks out there. Fed and FDIC are systematically dismantling all crypto-friendly banks one after the next,” posted author Nic Carter on X, expressing concern over the news.
The Federal Reserve believes that the bank’s board of directors should enhance their oversight and resources to manage these high-risk activities. A key focus of the scrutiny is on the bank’s digital asset strategy and instant payments platform.
As I noted before, U.S. banks are quietly de-platforming businesses that have anything to do with crypto. Operation chokepoint 2.0. is back. Bank regulators are quietly threatening bank CEOs and CCOs to shut down crypto companies and activities. https://t.co/ykFWHLNQAt
This announcement has sparked outrage in the crypto community, with accusations against the Federal Reserve and FDIC for gradually suffocating crypto businesses.
Agreement between the Fed and Customers Bancorp
Per the written agreement, Customers Bancorp and Customers Bank are to submit detailed plans within 60 days to address these deficiencies.
These plans must outline steps to strengthen board oversight, improve risk management, and enhance compliance with requirements and the Office of Foreign Assets Control regulations.
Additionally, the bank must revise its customer due diligence and suspicious activity monitoring programs. The agreement also stipulates regular progress reports to ensure adherence to the new compliance measures.
Customers Bancorp and Customers Bank both agreed to these terms as part of their commitment to improving their compliance posture and regulatory confidence.
The Aug. 5 market plunge reversed Bitcoin’s funding rate for margin positions, potentially setting the stage for a bullish fourth quarter.
Pseudonymous CryptoQuant analyst ShayanBTC said that Bitcoin’s (BTC) early-August decline may benefit the digital asset before this year ends. The dip to $49,000 triggered a massive deleveraging sweep, flushing nearly $1 billion in BTC longs. The slump also wiped out over $1.2 billion in crypto margin positions and reset funding rates to negative.
As a result, short sellers dominated leveraged positions. According to the CryptoQuant researcher, investors could view the development as a net positive “as it suggests the future markets are no longer overheated.”
“Smart Money” remained optimistic about markets as Bitcoin whales padded their holdings by over 404,000 tokens in the last 30 days after last month’s brief ascent to $70,000 and the plunge below $50,000. CryptoQuant data indicated that the accumulation spree coincided with several liquidation events, including Germany’s $3 billion offload and over $6 billion in Mt. Gox creditor repayments.
Investors adding BTC to their coffers is usually bullish for the largest cryptocurrency and signals strong market sentiment adopted by long-term investors, especially when funding rates have declined and created more room for upside momentum.
Bitcoin could range lower before an uptick
While whales bought more BTC, Bitfinex analysts predicted on Aug. 5 that the token could retest support around $48,900 before charging toward all-time highs again.
The assertion agrees with historical data showing that Bitcoin typically struggles in August and September. Gains achieved in July were wiped out by macro-driven market fear, but the year’s fourth quarter may bring relief for BTC.
Before global markets retraced, investors and markets widely expected Federal Reserve rate cuts in September. A dovish outcome at the Federal Open Market Committee meeting next month could direct much-needed liquidity into the crypto market and propel prices.
Presidential candidate and crypto industry supporter Donald Trump believes the U.S. government should not sell cryptocurrency.
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During a podcast with Adin Ross, he mentioned the recent sale of Bitcoin (BTC) by the U.S. government and asked Trump if he would support crypto if he won the November 2024 election.
If elected, it will be the policy of my administration to keep 100% of all the bitcoin the U.S. government currently holds or acquires into the future.
Trump then turned his attention to extolling the virtues of Bitcoin. He called the cryptocurrency “very modern” and compared it to artificial intelligence.
He added that if the U.S. will not innovate in the field of digital assets, other countries will, including China — the most significant geopolitical rival — which is already making progress in the cryptocurrency and artificial intelligence sectors.
How much Bitcoin does the U.S. have on its balance sheet?
According to analysts from the Arkham Intelligence platform, in the spring, the U.S. government had more than 210,000 BTC on its balance sheet, making it one of the largest holders of Bitcoin.
Our team created a dashboard featuring the Governments with the largest crypto holdings.
For each country, you can see their current BTC balance, balance history in USD, and a real-time feed of their most recent transactions.
In addition to Bitcoin, the U.S. government had about $200 million in other cryptocurrencies, including Ethereum (ETH), as well as Tether (USDT) and Circle (USDC) stablecoins.
In June, $243 million in BTC was transferred from a U.S. government address to the Coinbase exchange. These funds were confiscated from the darknet market operator Banmeet Singh, who pleaded guilty to drug trafficking and money laundering.
At the end of July, the U.S. government also moved 28,000 BTC to an unknown wallet. Then, 19,800 BTC of these coins were sent to one address and 10,000 BTC to another.
At the time of writing, according to Arkham Intelligence, the address belonging to the U.S. government stores cryptocurrencies worth $11.1 billion, including more than 203,000 BTC.
Since 2014, the U.S. Marshals Service has sold seized BTC through closed auctions. However, in late June, it was announced that the USMS, a part of the Justice Department responsible for asset forfeiture, had chosen Coinbase Prime to store and trade seized cryptocurrency.
The Coinbase Prime brokerage platform allows clients to store, buy, sell, and invest in cryptocurrencies. It is also the primary partner for most spot crypto ETFs.
Trump’s plans for government-seized BTC
At the Bitcoin 2024 conference, Trump announced his intention to create a strategic reserve of Bitcoin. He emphasized that cryptocurrencies can be essential to the country’s economic competitiveness and promised never to sell bitcoins confiscated by the U.S. government.
Republican Senator Cynthia Lummis, in support of Trump’s statement, announced plans to introduce a bill to purchase 1 million BTC for the U.S. Treasury, which is 5% of the asset’s total supply.
However, Lummis and Trump are far from the first to suggest introducing Bitcoin to government reserves. Michael Saylor, the former head of the MicroStrategy software developer, also expressed such thoughts. He proposed purchasing 4 million BTC for the U.S. Treasury.
In addition, ARK Invest CEO Cathie Wood also supported using Bitcoin as a reserve. She noted that this will only matter if the first cryptocurrency is not an instrument of monetary policy but is simply on the U.S. balance sheet.
Which countries have the most Bitcoins?
While investors buy bitcoin on the open market by investing real money, states more often obtain BTC through confiscation. Governments are among the largest holders of Bitcoins due to seizures from criminals.
Of all the countries holding Bitcoin, only El Salvador actively buys this crypto (since 2021) and mines it as part of the state-run Volcano Energy initiative, which uses geothermal sources as energy. Neither the United States, China, the United Kingdom, nor Germany have ever officially purchased cryptocurrency. However, thanks to confiscations from criminals, governments of large countries have accumulated crypto assets worth billions of dollars.
According to the Bitcointreasuries service, the combined crypto reserves of countries are estimated at 517,000 BTC, or more than $28 billion.
The U.S. government is considered the largest holder of Bitcoin among all countries. China is second on the Bitcointreasuries list — its reserves are estimated at 190,000 BTC. In 2020, the authorities seized 195,000 BTC and several other cryptocurrencies from the PlusToken financial pyramid in 2020.
The United Kingdom takes third place in the Bitcointreasuries ranking. The size of its reserves is estimated at 61,000 BTC, which is the amount of Bitcoins seized by the authorities in January.
Is Trump right?
Trump believes that the decision to store assets will become the core of the BTC strategic national reserve and expressed confidence that Bitcoin will overtake gold and silver in market capitalization.
However, Bitcoin reserves have drawbacks. The main one is significant volatility. This is the problem faced by the authorities of El Salvador, whose BTC reserves have decreased by a third due to a severe drop in Bitcoin’s value.
Nevertheless, BTC reserves can be beneficial in terms of diversification. Countries may seek to create alternative assets outside of traditional centralized financial systems. In addition, some countries may seek ways to conduct international settlements, bypassing the restrictions imposed on conventional financial transactions.
Wharton professor Jeremy Siegel called for the Federal Reserve to deploy an emergency rate cut as liquidity fled cryptocurrencies and global markets on recession fears.
Cryptocurrency markets dropped over $300 billion in 24 hours as assets like Bitcoin (BTC) and Ethereum (ETH) slid double-digits alongside traditional markets like the S&P 500 and the Nasdaq. The U.S. stock market also extended losses on recession fears, losing $1.93 trillion when trading opened on Monday, August 5.
Wharton’s Siegel urged the U.S. Federal Reserve to implement a 75-basis-point emergency interest rate cut to stem a global liquidity crunch.
In theory, Siegel’s proposed Fed pivot could provide much-needed relief for American financial markets. Extra liquidity on Wall Street could find its way into crypto markets, steadying prices and cushioning embattled digital asset valuations.
Institutional vehicles are already showing an appetite for crypto-backed funds. Spot Bitcoin exchange-traded funds saw $1.3 billion worth of trading volume in the opening 20 minutes of trading. While ETF data is typically staggered, spot BTC ETF investors may buy the dip, and inflows turn out positive.
20 mins into the trading session and #bitcoin ETFs have already seen $1.3bn in volume — this is extremely elevated pic.twitter.com/D6ZQEHtfdY
Meanwhile, bettors on the Polygon-based decentralized prediction market, Polymarket, have placed $3.3 million on wagers about Fed interest cuts this year.
The second-largest punter pick expects three 75 bps cuts between August and December. The Federal Open Market Committee calendar shows meetings in September and November, respectively, with markets pricing in a rate cut next month.
Three cuts before 2024 ends would require the Fed to announce an emergency policy switch amid global market downturns. However, it was unclear if the American apex bank would adopt such an aggressive pivot or how crypto markets would react to the fund rate change.
Before global recession concerns gripped markets last week, crypto proponents generally perceived a rate cut as a positive development.
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.
The likelihood of the U.S. Federal Reserve cutting rates in September looks bullish for Bitcoin and crypto investors, QCP Capital analysts wrote in an Aug. 1 report.
On July 31, minutes from the Federal Open Market Committee meeting revealed that Fed chair Jerome Powell and other officials at the American apex bank decided to leave interest rates unchanged.
Powell and the Fed maintained tighter monetary policies for another month, keeping rates between 5-5.5% as the regulator held out for more positive economic data.
According to QCP Capital, the FOMC minutes suggest that the Fed leans toward dovish policies as the year inches toward its final quarters. “A September cut has been fully priced in,” QCP analysts wrote in an Aug. 1 note.
Jag Kooner, head of derivatives at Bitfinex, echoed QCP’s sentiment, adding that a September rate cut would bolster bullish momentum and improve market liquidity. Bitcoin (BTC) and other cryptocurrencies regarded as risk assets would benefit from more capital inflows as investors seek higher returns from outside the stock market.
Kooner said: “There is a lot of confidence in the market at the moment, particularly as even potentially negative news like the Mt. Gox Distribution, German Government selling, and many recent significant Chain movements have not been able to impact the Bitcoin price to the downside substantially.”
Bitcoin adoption on the rise
Bitcoin was created as a decentralized alternative to distrusted centralized systems. Fifteen years after its launch, the leading cryptocurrency is a centerpiece in conversations around national reserves and sovereign holdings.
U.S. presidential candidates like Donald Trump and Robert F. Kennedy Jr have proposed creating a sovereign Bitcoin reserve. America’s existing $12 billion stockpile would form the bulk of such a move, while RFK Jr advised the U.S. to buy more Bitcoin.
If America proceeds with this plan, it could set a precedent for other countries to add Bitcoin as a reserve asset. This could bring more BItcoin under state control and transform the wider cryptocurrency landscape.
While some proponents hail the move as the next step in Bitcoin adoption, skeptics wonder if government-owned Bitcoin troves were part of Satoshi Nakamoto’s vision, the infamous creator of Bitcoin.
Altcoins dogwifhat, Bonk, THORChain, and Jupiter have suffered losses above 10% as Bitcoin dipped 4% in the last 24 hours.
Following a period of relative calm yesterday, July 31, Bitcoin’s (BTC) price actions experienced a dramatic shift as the cryptocurrency fell by more than $3,500, bringing its value down to $63,300. At the same time, altcoins also mirrored this trend, with the total value of liquidated positions soaring to nearly $225 million over the course of the day.
Initially, the week started on a high note for Bitcoin, as it climbed to its highest point since early June, reaching $70,000. However, this peak was short-lived as a swift rejection ensued, leading to a substantial decline, with Bitcoin dipping below the $65,500 mark.
The cryptocurrency did manage to regain some stability, trading quietly at about $66,800. Nonetheless, following a press conference by Federal Reserve Chair Jerome Powell, Bitcoin’s value tumbled again to $64,300, marking a decrease of over 3% within 24 hours.
The downturn coincided with a report from the New York Times stating that Iran had called for retaliatory measures against Israel following the assassination of Hamas leader Ismail Haniyeh in Tehran, escalating the potential for further regional conflict.
Meanwhile, on the economic front, the Federal Reserve decided to maintain the benchmark interest rates, offering little insight into the anticipated rate cut in September. Powell also hinted that while no concrete decisions were made regarding the September adjustment, there is a growing consensus on the likelihood of a reduction.
Amid the Bitcoin drop, altcoins have suffered even more significant losses. For instance, dogwifhat (WIF) saw a 12.4% decrease, and (BONK) experienced a 10% decline. Other altcoins like THORChain (RUNE) also fell by 10%, while Jupiter (JUP) and Ethereum Name Service (ENS) decreased by 8% and 9%, respectively.
Among the larger-cap cryptocurrencies, the biggest losers are Solana (SOL) with an 8% drop, (XRP) down 6%, Cardano (ADA) falling 4%, and both Ethereum (ETH) and Dogecoin (DOGE) experiencing a decline of 4.4%.
Data from CoinGlass indicates that nearly 67,000 traders have been adversely affected by this increased volatility. BTC positions have seen $61.85 million in liquidations, while ETH positions have faced $61 million. In total, the value of liquidated positions stands at $225.4 million at the time of writing.
The Federal Open Market Committee will deliver its July interest rate decision on Wednesday, a move that could impact Bitcoin and other crypto prices.
Cryptocurrencies wait for the Fed decision
Most cryptocurrencies traded in a tight range ahead of the Federal Open Market Committee decision. Bitcoin (BTC) was trading at $66,300, down from this week’s high of $70,000 while Ethereum was at $3,320.
The market cap of all cryptocurrencies was down by just 0.78% to $2.38 trillion. Even some of the best-performing altcoins of the day like Mog Coin (MOG), Kaspa (KAS), and Ripple (XRP) were up by less than 6%.
Economists expect the Federal Reserve will leave interest rates unchanged between 5.50% and 5.25% in this meeting. According to Polymarket, only 4% of participants in the $2.4 million pool expect the bank to slash rates by 25 basis points.
Nonetheless, this will be an important meeting since the bank could provide guidance on when rate cuts will start.
With inflation falling for three consecutive months and the unemployment raterising, the Fed could point to a September cut. The alternative scenario is where the bank maintains a vague data-dependence posture. In this case, it will watch Friday’s non-farm payrolls data for cues on the labor market and the next consumer price index report. It will then provide guidance on a September cut at the annual Jackson Hole Symposium.
Implication for Bitcoin and altcoins
All assets are impacted by the actions of the FOMC. For example, in 2020 and 2021, BTC and other altcoins soared as the bank slashed rates to zero. They then reversed in 2022 as the bank started its benchmark rates.
One reason Bitcoin and other coins could do well when the Fed starts cutting interest rates is that investors have packed trillions in low-risk assets. Money market funds have accumulated over $6.1 trillion in assets as investors benefit from the average return of 5%.
Money Market Funds totaled more than $6.1 Trillion at the end of the 2nd quarter, an all-time record. And U.S. households were the biggest contributors! pic.twitter.com/SwAb6ek7Ll
These assets will be less attractive when interest rates start moving downwards. As a result, there are chances of a rotation to riskier assets like stocks, crypto, and Bitcoin ETFs.
Still, for this meeting, the impact on cryptocurrencies may be limited since the rate pause has been priced in. As shown in previous Fed decisions, there has been no major impact on Bitcoin prices.
