Bitcoin Tanks on Korean Martial Law News—But the Swift Recovery Signals Something Bigger
Digital Asset Market: When South Korean President Yoon Suk Yeol declared "emergency martial law," accusing opposition parties of undermining the government, the crypto market panicked. This quickly led to a 30% drop in the values of significant crypto tokens, including Bitcoin and XRP, on South Korean exchanges for a brief period. The declaration of martial law highlights the current political tension and its impact on the nation's economy, including the crypto market. Since then, the decision seems to be reversed by the National Assembly, and the market is stabilizing.
Whales swooped in with significant amounts of USDT after the market drop caused by the declaration of martial law. Within an hour of the president's announcement, the large traders transferred over $163 million in USDT to the exchange Upbit, aiming to take advantage of discounted prices. BTC had fallen to $63,000 on Upbit and has since recovered to trade near $94,000.
Macro Economics: China has increased trade tensions with the US through a tit-for-tat move, banning the exports of key materials with high-tech and military applications, including gallium, germanium, antimony, superhard materials, and graphite. This comes after the US government escalated technology curbs on Beijing, aiming to slow China's advancement in advanced semiconductors and artificial intelligence systems that may aid its military. The targeted metals, which are critical components used in semiconductors, satellites, and night-vision goggles, have seen a surge in prices since China initially placed controls on their exports last year. While China is the top global supplier of these materials, the US has been looking to diversify its critical supply chains. China has opposed the US administration's actions and urged them to do more to stabilize the bilateral relationship. Meanwhile, the US is assessing the new restrictions and considering ways to mitigate their impact. The Chinese industry associations have also advised Chinese companies to choose carefully when buying chips from the US.
Equities: The S&P 500 index showed little change on Tuesday, as the market paused after a strong rally pushing U.S. stocks to record highs. The Dow Jones Industrial Average also slipped slightly, while the Nasdaq Composite advanced to a new intraday high before pulling back. Most analysts and investors are waiting for the upcoming December 17-18 Federal Reserve meeting and the November payrolls report on Friday, which could provide insight into the state of the labor market. Some experts believe there is still potential for the market to continue its upward trend, citing factors such as low inflation, interest rates, strong earnings, and technological advances. Additionally, data released on Tuesday showed an increase in job openings, and more economic data is expected to be released later this week. However, others caution against expecting too much, as November was already the best month of the year for the market, and money may still be on the sidelines.
The Fed and US Treasury: The Bureau of Labor Statistics released its Job Openings and Labor Turnover Survey for October, reporting a rise in job openings to 7.74 million, higher than the Dow Jones estimate of 7.5 million. This brings the ratio of available positions to unemployed workers up to 1.1, but hiring fell from 269,000 to 5.31 million during the same month. The hiring rate also dropped by 0.2 percentage points. Layoffs, on the other hand, decreased by 169,000 to 1.63 million, while voluntary job quitters increased by 228,000 to 3.33 million. The overall labor market was disrupted by violent storms in the Southeast and two significant labor strikes involving dockworkers and Boeing. This is reflected in the lowest nonfarm payroll growth in nearly four years, with just 12,000 jobs added in October. The Federal Reserve closely monitors the JOLTS report for signs of tightness or slack in the labor market, and the upcoming December meeting may see a quarter percentage point decrease in the benchmark borrowing rate to mitigate any potential weakness in the labor market. According to Fed funds futures, there is a high probability that the Fed will lower interest rates at the upcoming meeting.
Geopolitical: The South Korean stock market saw significant swings due to political turmoil and fears of instability in the country after President Yoon Suk Yeol declared martial law after accusing opposition parties of sympathizing with North Korea, only to overturn the order three hours later by the National Assembly. Korean companies that traded in U.S. markets also saw a decline in their stock value. The White House monitors the situation closely, and the Korean Stock Exchange is holding an emergency meeting to decide whether the market will open on Wednesday. The U.S. dollar was also higher than the South Korean won.
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View from our desk
Bitcoin experienced a sharp drop following the announcement of Korean martial law, revealing the limited depth in certain global crypto markets. However, the swift recovery that ensued underscored the readiness of investors eager to capitalize on discounted prices. An influx of $163 million in stablecoins into Korean exchanges highlights the enthusiasm of buyers seizing opportunities to load up on Bitcoin during dips. This reinforces our view that the current rally differs significantly from 2021, as it is driven by a larger and more diverse investor base rather than relying solely on crypto enthusiasts. The involvement of mainstream and institutional participants adds a layer of resilience to the market, making this rally less prone to rapid collapses than previous cycles.
In traditional financial markets, all eyes are on the November payroll report scheduled for release on Friday and the Federal Reserve’s upcoming December rate cut decision. These two pivotal events are expected to provide valuable insights into economic health and monetary policy direction. While the market exhibits strong underlying support, there is an air of caution as investors weigh the potential impact of the Fed’s actions and labor market performance. The interplay between inflation management, economic stability, and market expectations continues to keep sentiment mixed, with traders and institutional players showing restraint as year-end approaches.
Looking ahead, market caution is likely to persist through the remainder of the year as investors brace for President Trump’s inauguration in January. The uncertainty surrounding political shifts, economic data, and monetary policy decisions keeps optimism in check. However, the anticipation of new fiscal policies and the stabilization of key economic indicators could drive renewed confidence in early 2025. Until then, investors are expected to carefully navigate the confluence of political, financial, and market dynamics that define the current environment.
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