Main reasons for the drop:
- Rising Unemployment Rate
- Japanese Yen and Market Movement
- Mt. Gox and Genesis Distribution
- Stock Market Turmoil
- Fed Maintains Current Interest Rates
- Miner Reserves Plummet Amid ATH Difficulty
- Kamala Harris’ Odds
In the past 24 hours, over $1 billion was liquidated as Bitcoin experienced a sharp decline, plummeting to $50,000, its lowest level since February. Consequently, the total market cap of cryptocurrencies also dropped significantly, falling from $2.4 trillion to below $1.85 trillion.
This downturn in BTC’s price can be attributed to several key factors.
Rising Unemployment Rate
The U.S. government reported that the unemployment rate rose to 4.3% in July, the highest in three years, up from 4.1% in June, per Reuters. The International Monetary Fund (IMF) explains that since unemployment trends follow economic growth with a delay, it is considered a lagging indicator.
According to Global Markets Investor, US job numbers were overstated by approximately 1,000,000 in both the third and fourth quarters of 2023. Their report indicated that the US lost 192,000 jobs in Q3 2023 and created 344,000 jobs in Q4 2023.
Asian Stock Market Turmoil
The Bank of Japan raised its interest rate for the first time in 17 years, prompting investors to withdraw from US equities and other risk-on assets, per CNBC. Previously, borrowing yen was cost-free, but with the new interest rates, it now incurs a cost, making US investments less attractive.
Japan’s stock market has officially entered correction territory, falling over 13%, making it the worst day since 1987. Even shares of MUFG, the country’s largest bank, fell by almost 27% from 1,275 to 1262, marking the biggest decline in its history.
Aside from Japan, South Korea’s KOSPI index fell 8.7%, triggering a “sidecar,” which allows for a temporary halt on trading. Taiwan’s TAIEX index also fell 8.4%, its worst day ever recorded.
Mt. Gox and Genesis Distribution
Mt. Gox is nearing the end of its distribution process, with only 46,000 BTC remaining after distributing nearly 100,000 BTC to creditors. The exchange is scheduled to complete its repayment by October 31, 2024.
Genesis has commenced its distribution process, with $4 billion worth of digital assets expected to be paid to creditors. Approximately $2 billion, or 51.28% of the total repayment, will be distributed in Bitcoin to BTC creditors.
Stock Market Turmoil
The U.S. capital market lost over $3 trillion in a single day, including $500 billion overnight, in a decline reminiscent of March 2020 during the onset of the COVID-19 pandemic. This significant drop is primarily attributed to the bursting of the AI bubble.
Even long-term investors like Warren Buffett have significantly offloaded their portfolios. Buffett sold almost half of his Apple stake, dropping its holdings from 790 million to 400 million shares, despite the company losing less than 3% in the past 30 days and still being up 18.43% year-to-date.
Fed Maintains Current Interest Rates
The Federal Open Market Committee (FOMC) has maintained the benchmark interest rate at 5.25–5.50%, as anticipated. While the relationship between Bitcoin’s price and Federal Reserve interest rate decisions is not always direct, these decisions can influence market sentiment and liquidity.
If the Fed maintains or lowers rates, it can signal economic stability and increase risk appetite, potentially benefiting Bitcoin. Conversely, investors may become more risk-averse if the decision is perceived as a sign of economic trouble, leading to a Bitcoin sell-off.
Miner Reserves Plummet Amid ATH Difficulty
As mining difficulty increases, Bitcoin miners often struggle to mine new BTC and may sell their reserves to offset costs. Since July 15, miner reserves have significantly decreased despite Bitcoin’s price rising.
Starting on July 15, Bitcoin’s mining difficulty increased from 79.5T to 90.67T by August 5, reaching an all-time high.
Kamala Harris’ Odds
Crypto betting site Polymarket saw increased odds for Kamala Harris to win against Donald Trump.
Although she hasn’t publicly expressed her thoughts on crypto, Biden’s administration represents an anti-crypto stance, including SEC Chair Gary Gensler’s crackdown on crypto and support for anti-crypto legislations, and the plans to develop central bank digital currencies (CBDCs). It’s believed Harris might continue the administration’s stance as she has yet to make an effort to win over the crypto community.
How Kamala Harris’ Nomination as Presidential Candidate Could Impact the Crypto Industry
Kamala Harris is also said to be considering Gary Peter as her running mate. Peter is known as “strongly against crypto,” holding the following stances.
- Co-sponsored Elizabeth Warren’s “crypto ban” bill
- Launched an investigation into crypto use by cybercriminals.
- Supported the Infrastructure Investment and Jobs Act, including provisions that tax crypto and NFTs.
