The recent Bitcoin price crash can be attributed to worsening macroeconomic conditions. Specifically, the Bank of Japan (BOJ) raising interest rates on July 31 and a weak jobs report on August 2 triggered the recent spiraling of cryptos.
Recent Bitcoin Price Crash and Macroeconomic Connection
The Bank of Japan (BOJ) raised interest rates by 25 basis points on July 31, negatively impacting the carry trades. This catalyzed a 3.50% crash in the USDJPY pair, pushing it from a high of 153.906 to 148.513 on July 31.
In this case, investors borrow JPY at a low interest rate and invest in USD or assets with relatively higher interest rates. The carry traders profit by earning the difference (carry) in the interest rates between the involved pairs.
The recent BOJ decision to raise interest rates and the US Federal Reserve’s decision to cut them caused a devastating blow to these traders’ profits and forced them to liquidate. As a result of this forced move, the USDJPY pair saw a sudden crash on Wednesday. After the jobs data on Friday, the US tech stock index (NDXT), S&P500, and other risk-on asset classes saw a sell-off. Cryptocurrencies fall into the risk-on category, which explains why Bitcoin price has been crashing since July 29.
This steep market correction has pushed the Sahm Indicator and Joshi Rule to signal “recession.”
To conclude, here’s why Bitcoin price is crashing:
- The Bank of Japan’s rate hike coupled caused the initial sell-off in the USDJPY pair.
- The US Fed’s decision to cut interest rates caused the second wave of a market crash.
- Risk-on assets like tech stocks and cryptos suffered a steep correction.
- This Bitcoin price crash has pushed the pioneer crypto down to sub-$50,000 levels.
- Investors can expect this downtrend to continue until macroeconomic outlooks are laid to rest.
Read more: Crypto Market Crash: Liquidations Cross $800 Million As Japan’s Nikkei Drops 13%
Here is What Crypto Investors Can Expect Next
Between July 29 and August 5, the Bitcoin price crash wiped out nearly 30% of the market capitalization, from $1.382 trillion to $969.255 billion. At the time of writing, BTC is trading at $52,726.
From a technical perspective, BTC is at a very opportune level for a bounce, but unless the macroeconomic conditions do not improve, it is unlikely that the crypto sell-off will pause or reverse. If the $50,000 psychological level is breached, chances of revisiting the $45,156 key weekly support level are high.
On the other hand, if Bitcoin price attempts a recovery, it needs to overcome the $57,265 key hurdle. Beyond this, Bitcoin price forecasts that BTC will encounter the $60,000 psychological level. Flipping these hurdles as support will signal confidence and could attract sidelined buyers. However, considering the global market conditions, investors must be extremely cautious about buying the dips here.
Also read: Peter Schiff Slams Bitcoin Debt Repayment Plan By Donald Trump
The post Reasons Why Bitcoin Price Crash Could Continue appeared first on CoinGape.
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