Bitcoin and crypto markets experienced a robust recovery Tuesday, with Bitcoin surging past the $56,000 mark and Ethereum breaking above $2,500, bouncing back from the โBlock Monday.โ Yesterday, Bitcoin plummeted over 15%, touching lows near $49,000, while Ethereum dropped by more than 20% to a low of $2,115. The recovery in Bitcoin and crypto paralleled a broader resurgence in global financial markets, driven by several key factors.
#1 Nikkei Rebounds, Bitcoin Follows
Japanโs primary stock index, the Nikkei 225, experienced a record-breaking recovery following its most significant drop since the 1987 Black Monday crash. The index surged by 10.23%, closing at 34.675,46 points. This rebound came after a sharp 12.4% decline on Monday, spurred by global market instability and looming recession fears in the US, alongside complications arising from the unwinding of the Yen โcarry trade.โ
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Popular crypto analyst JACKIS (@i_am_jackis) remarked via X: โI think that crypto right now is reacting to macro conditions but nothing specific IMO is happening to crypto itself. Here is BTC & Nikkei in comparison. When macro conditions settle Bitcoin / crypto should rebound stronger but until then be careful.โ
#2 ISM Services Data Is Bullish
The US Institute for Supply Management reported on Monday that its non-manufacturing PMI rose to 51.4 in July from Juneโs 48.8, which was the lowest since May 2020. This index measures the health of the services sector, which constitutes over two-thirds of the US economy. A PMI above 50 suggests expansion, and the latest data indicates a rebound in service sector activity, easing some concerns over an impending recession.
Eric Wallerstein of Yardeni Research expressed relief and cautious optimism about the data: โWoah, maybe the US economy is not crashing? ISM services employment up 5 points to 51.1. Entire PMI in expansion,โ he stated via X.
Andreas Steno Larsen of Steno Research also commented, highlighting the precariousness of market sentiment: โISM Services away from the recession zone again. Not sure it is strong enough to convince Markets. We are not trading macro currently. We are trading leveraged stops.โ
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Ram Ahluwalia, CEO of Lumida Wealth, added: โISM Services are *up* reversing the signal from the ISM Manufacturing data last Friday. No recession folks. This is a technical / positioning driven correction. Consider that Earnings are up 12% YOY vs Consensus of 9%. That doesnโt happen at a Recession turning point.โ
#3 Market Anticipates Aggressive Fed Rate Cuts
The financial markets are currently pricing in significant monetary easing by the US Federal Reserve. According to the CME FedWatch Tool, there is now a 73.5% probability of a 50 basis points rate cut by September, with a minimal rate cut of 25 basis points now seen as certain. This shift in expectations reflects a drastic change in sentiment compared to just a week ago when the probability of such cuts was much lower.
Matt Hougan, CIO at Bitwise, underscored the rapid shift in market dynamics: โOne week ago, the market was pricing in an 11% chance of a 50 bps rate cut in September. Today, itโs 100%. Things come at you fast,โ he remarked via X.
#4 Overblown Reaction
The market crash was also exacerbated by what some analysts are calling an overreaction to fears of a US recession. Macro analyst Alex Krรผger pointed out the cyclicality of this fear-driven market behavior.
โThe world suffering from a case of mass hysteria on fears of a US recession. A display of letting price action create a narrative that feeds into price action as everything spirals down in a negative feedback loop. VIX hits 65, third largest spike in history. Then a strong bounce comes this morning on the open while ISM data shows better than expected demand and employment growth,โ Krรผger remarked.
At press time, BTC traded at $56,010.
Featured image created with DALL.E, chart from TradingView.com
