Bitcoin price plummets as stock markets react to US recession fears | Bitcoin News by CoinCorner

Transcript

A brutal week for crypto and the stock market as global markets sell off and are in disarray following the Bank of Japan's decision to raise interest rates. Mt. Gox creditors, after waiting 10 years to receive their coins, appear to be holding strong and aren't selling. And Peter Schiff, a long-term critic of Bitcoin, accidentally shares support for the crypto asset.

Financial markets are in absolute turmoil this week as we see global markets sell off across different asset classes. Looking first at Bitcoin: from recent highs of $70,000 per coin last month, it has dropped by nearly 30%, bottoming at below $50,000 per coin, which is the lowest level since February earlier this year. On Monday, Bitcoin dropped by a massive 15% in one day, with a wider sell-off across the crypto market. According to CoinGecko data, the market has lost a whopping $367 billion worth of value, while leveraged traders got hit with $1.13 billion worth of liquidations, according to data from CoinGlass.

In other markets, Wall Street had its worst trading day in nearly two years. The "Magnificent 7" are nearing their worst days since the 2020 pandemic, and Japan's Nikkei 225 index dropped over 12%, making it the worst trading day since the infamous Black Monday crash of 1987. But the important thing to know is: is this all just mindless panic, or is there something serious at play?

Well, this sell-off was all initiated last week in the US when data was released showing a weaker-than-expected jobs report, with higher unemployment and a declining manufacturing sector, sparking concerns of a recession. Official data showed that employers added 114,000 jobs in July, far fewer than expected, while the unemployment rate rose to the highest level in nearly three years. As a result, the Fed opted to hold interest rates and refrained from promising rate cuts in September, which analysts had been heavily anticipating. Keeping rates high is typically bad news for risk assets like Bitcoin and the stock market, as lower rates tend to correlate better with performance in these markets. The reason for this is that when rates are high, you don't need to speculate on risk markets to generate returns on your money in the same way as you do when rates are low. So, this could explain some of the initial sell-off.

Additionally, the other main catalyst for the market correction is related to changes in monetary policy in Japan. Last week, the Bank of Japan announced plans to raise interest rates to levels unseen in 15 years in an attempt to strengthen the yen. They opted to raise rates from 0.1% to 0.25%, which seems remarkably low, but for context, since 2016, Japan has held negative interest rates of minus 0.1%, so this is a significant change in their long-standing central bank policy.

One reason this has had such a knock-on effect on global markets is due to the unravelling of what's called the yen carry trade. The strategy involves borrowing cheaply in Japan's ultra-low interest rate environment and using those funds to invest in higher-yielding assets, such as US tech stocks. The problem is, when these rates change, it can massively affect the profitability of the trade, making it necessary for investors to unwind the trade by selling off the assets and returning the borrowed funds.

However, following all of this chaos, to try and calm markets, Japan's Deputy Governor has said, "Seeing sharp volatility in domestic and overseas financial markets, it's necessary to maintain current levels of monetary easing for the time being," contrasting the previous decision to raise interest rates.

Luckily, it's not all doom and gloom this week, and there is some positive news for Bitcoin with our next story, which follows the Mt. Gox bankruptcy distribution. After the collapse 10 years ago of what was once the world's largest crypto exchange, creditors have finally begun to see their assets returned. According to data, nearly half of the Bitcoin owed to Mt. Gox creditors 59,000 Bitcoin out of a total of 141,000 Bitcoin has already been distributed.

But despite the $3.2 billion worth of Bitcoin issued to creditors, the market hasn't seen a sell-off related to this distribution, which some were concerned about. Bobby Zagotta, CEO of Bitstamp US, said that to many, Bitcoin is viewed and treated like an appreciating asset, and Mt. Gox creditors have seen their Bitcoin holdings appreciate by nearly $89,000 since they lost access to them. Seeing returns like this, they may be even more inclined to hold, and now, seeing the continued growth and acceptance of the industry for example, with the US presidential race many Mt. Gox creditors may have even become stronger believers in Bitcoin and its future potential, choosing to hodl further.

Now, our next story comes in the wake of Cynthia Lummis's announcement at the Bitcoin conference for a new bill proposing the use of Bitcoin as a strategic reserve asset for the US government. The bill, which plans to combat the US government's debt crisis by buying 1 million Bitcoin, equating to nearly 5% of the total supply, has received support from constituents with over 2,200 letters to senators within 48 hours urging them to co-sponsor the bill. In a post on X, Dennis Porter, founder of the Satoshi Action Fund, said that Democratic Party senators received 1,333 letters, Republican Party senators received 850, and independents received 41. This bipartisan support demonstrates the interest in Bitcoin and its potential strategic value, which crosses political and ideological lines.

Now, our final story is coming from die-hard gold bug and Bitcoin critic Peter Schiff, who may have just accidentally admitted that Bitcoin has not one but several real-world use cases. Peter Schiff is a prominent financial commentator and shares the strong views and concerns held among many within the Bitcoin community regarding currency debasement leading to out-of-control inflation, government overreach into the financial markets, and the debt bubble that could be on the verge of collapse. However, rather than seeing Bitcoin as the potential solution, Schiff has always held an extremely negative view towards the asset and has always favoured gold instead.

But this week, in a post on X whilst criticising Bitcoin ETFs, Schiff said that it "defeats the entire purpose of owning it in the first place. It's no longer decentralised, it's not peer-to-peer, it's easily seized by authorities, can't be used as a current for payments, or transferred across borders. It's not your keys, not your coins." As a result, this post garnered an avalanche of mockery from Bitcoiners, many of whom wholeheartedly agree with what he's saying. A large number responded by saying they were proud of Peter for finally coming around to Bitcoin. But hilariously, Aubrey Strobel, CEO of Beaver Bitcoin, responded by saying, "If what Schiff says is true, Bitcoin might just be the best form of money the world has ever seen."