The Bitcoin market experienced a significant downturn earlier this week, sparked by rising concerns about the US economic outlook and increased volatility in broader financial markets. Ethereum’s performance particularly lagged, influenced by heightened futures market activity and selling pressure from select large holders.
Despite these market challenges, Grayscale, an asset manager and exchange-traded fund (ETF) issuer, remains optimistic about the potential for token valuations to rebound if the US economy continues on a trajectory toward a “soft landing.” Even if economic conditions weaken, Grayscale suggests that the downside risk to cryptocurrency prices may be more contained than in previous instances.
According to recent research by Grayscale, the catalyst for the recent market contraction was the release of disappointing US employment data for July, published on August 2. This report showed an increase in the unemployment rate, reminiscent of patterns seen in past recessions. Concerns about a potential economic downturn weakened 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.
Within the crypto market, both Bitcoin and Ethereum experienced significant declines. Ethereum, in particular, underperformed other digital assets and traditional market segments, partly due to significant long positions in perpetual futures that were liquidated during the downturn, exacerbating the price decline. The market also witnessed a sudden 7.6% drop in Ethereum’s price over a brief three-minute window on August 4, with liquidations totaling $340 million that day alone.
Several factors contributed to Ethereum’s underperformance, including selling pressure from prominent holders like Jump Crypto, Paradigm, and the Golem Network, alongside shifts in Ethereum’s staking reward rate and validator activity.
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, according to Grayscale. 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 toward a controlled slowdown, token valuations could recover, with Bitcoin potentially retesting its previous all-time high. The firm also highlighted 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.
Similarly, market analyst CryptoCon claims that the 3.618 Fibonacci extension has accurately found every local high in the current market cycle, predicting a 52% increase, with the .618 extension potentially pushing Bitcoin over the $100,000 milestone. CryptoCon notes that if the “1-month-behind 2023” trend continues, a price of over $100,000 could be in reach for the largest cryptocurrency by the end of the year, following the retracements of the past few months.
At the time of writing, Bitcoin is struggling to hold consolidation above the key $60,000 level, falling nearly 1% from Thursday’s high of $62,800 to trade at $59,970.
