Bitcoin Plummets Below $26,000: SpaceX's Shocking Sale and China's Crisis – What's Next?
Digital Asset Market: Bitcoin's 14-day RSI indicator has diverted into oversold territory and its current trend has shifted bearish, with the cryptocurrency currently trading at $26,000. This bearish momentum comes at a difficult time for Indian crypto exchange CoinDCX, which is being impacted by the country's stiff taxes on cryptocurrency, including a 30% tax on profits and a 1% TDS on all transactions. This has resulted in a decrease in trading volumes and revenue for the company, forcing it to downsize and apologize to those affected.
Macro Economics: The US has seen strong economic growth lead to a decline in inflation, avoiding a recession in the midst of high interest rates. Consumer spending in July has kept the steady momentum going, but there are signs that inflation could start to pick up again. Jerome Powell's speech on Friday in Jackson Hole, Wyo. is expected to address the issue of inflation. Wage growth is still strong and the labor market remains tight, meaning real wages are positive again. Though economists remain optimistic that the US can avoid a recession, they are cautious about stalling policymaking in Thailand due to a delay in government formation. The Bank of Thailand may be done with hiking policy rates this year, but risks like property sectors in China and elevated household debt could still have an impact.
Equities: The S&P 500 and Nasdaq Composite rose Tuesday, with the two benchmarks attempting to build on strong gains from the previous session. Tech stocks led the gains, posting a 0.9% increase while Lowe's stock rose 2% following the release of its full-year guidance. The rise of the two indices came despite rising yields on the 10-year Treasury, which reached its highest level since November 2007. Investors are watching Nvidia's earnings closely, as its rise has been seen as a bellwether for sentiment on the AI-boom. Despite the current market optimism, some investors anticipate additional downside in the equity market due to rising yields making debt refinancing more burdensome.
The Fed and the Banks: Fed Chairman Jerome Powell is set to speak this Friday at the Federal Reserve's annual summer symposium in Jackson Hole, Wyoming. This comes at an important juncture for the central bank, which is debating whether to halt its campaign of interest rate hikes amid an inflation rate roughly 50% higher than its 2% annual target. Powell will seek to balance the goals of attaining full employment and controlling inflation in a volatile economic climate and a tense election season. Economic data since the Fed's July interest rate hike have indicated the economy is still growing, though the third-quarter growth rate is expected to decrease. Other data this week, including on existing and new home sales, will also be of interest. The markets have been adjusting to the rising bond yields due to an anticipated slow economy and extended rates, and this could signal further equity market drops.
Geopolitical: The U.S., South Korea and Japan are holding an unprecedented summit at the Camp David presidential retreat, in an attempt to bolster security cooperation in the region in response to threats from North Korea, China, and Russia. Chinese commentators have accused this summit of attempting to form a “mini NATO” structure, which would be “destructive” to regional security. The leaders are expected to discuss missile defense and new export controls, among other topics, in hopes of loosening reliance on China’s markets for critical semiconductor manufacturing.
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Last week, Bitcoin (BTC) experienced a significant drop, falling below the $26,000 mark. This decline was influenced by a combination of factors, including decreased market activity, a burgeoning crisis in China's property sector, and reports that SpaceX has sold some of its Bitcoin holdings. The market is currently characterized by weak demand, and we see potential for further downside risk. The confluence of these factors paints a complex picture for the cryptocurrency, and investors are closely watching for signs of stabilization or further decline.
In the broader economic landscape, attention is turning to Federal Reserve Chairman Jerome Powell's upcoming speech in Jackson Hole. With inflation risks remaining high, the Federal Reserve faces a delicate balancing act. They must weigh these inflationary pressures against other critical economic factors, most notably the real estate market, which is in a precarious position and unlikely to withstand further rate hikes. This complex interplay of factors adds to the uncertainty surrounding the Federal Reserve's next moves.
We continue to adhere to our long-held opinion that the Federal Reserve will maintain the current interest rates. The combination of high inflation risks and the fragile state of the real estate market creates a challenging environment for monetary policy. In our assessment, the prudent course of action for the Federal Reserve is to hold steady on rates, recognizing the multifaceted economic landscape and the potential consequences of any abrupt changes.
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The 1Konto Team
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