The global financial market has recently fallen into an artificial panic of "the US economy is about to go into recession". The main reason is that the PMI index released by the United States has fallen into recession for two consecutive months, overlapping with the massacre on August 5, which has intensified the panic of the main players continuing to sell risky assets. As a result, both the cryptocurrency market and US technology stocks have performed quite poorly recently. The media has also followed suit to promote this "recession" theme, trying to amplify price fluctuations.
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The first to be hit are the AI stocks with the highest growth in the United States. This is the sector with the highest leverage in market capitalization. The market is currently frantically short AI stocks, and the force is so strong that even cryptocurrency concept stocks and Bitcoin spot ETFs have been negatively affected. For example, Coinbase stock fell from US$240 to US$150, and the prices of mining stocks and other cryptocurrency concept stocks also fell. Finally, confidence in Bitcoin ETFs was also eroded, and the price of Bitcoin also fell with the net inflow of funds.
Although the overall situation is controllable, traders are not panicking because the volatility of Bitcoin is not as exaggerated as imagined. It is still declining gradually from the previous $64,000 to $62,000, $59,000 to $57,000, and finally to a low of $53,300. Ethereum also performed poorly, with the price falling below $2,200 at one point. This indicates a gradual outflow of funds, which is not a good sign. A slow decline is the most painful stage of trading.
The market has entered a phase of slow decline, and user confidence is quite low. There is not much possibility for a strong rebound in the short term. Even if the Fed cuts interest rates, it may not help much, because the main reason for the decline is the structural decline in trading sentiment, not the market mispricing of risky asset prices. The only possibility is that the Fed will aggressively cut interest rates by two points, but this is unlikely. There is still a high probability that the Fed will adopt a conservative strategy of cutting interest rates by one point and observing more economic data.
Fund sentiment has become more conservative and cautious, waiting for more economic data to be released in the short term
Last week, the August manufacturing PMI index, the "small non-farm" ADP employment report and the August non-farm employment report were released. Except for the continued sluggish PMI index, the ADP and non-farm employment were not as bad as imagined. The US manufacturing index itself does not have much reference value for the US economy, which is dominated by consumption. We believe that this wave is more like a deliberate sell-off by the market. The fundamentals behind it have not changed. It is more of a false impression that the economy is really going to go into recession.
However, what about recession? The Fed has a higher probability of adopting a faster rate cut strategy. Currently, the rate cut was one basis point in September, and it may be cut faster in the future. In the next two years, it may drop to a neutral interest rate of 3.5%, officially breaking away from the restrictive interest rate of the Fed in the face of high inflation. At that time, Bitcoin will definitely rise. The long-term price of Bitcoin is still bullish. In the face of economic recession, the Fed can always solve the economic recession through loose policies.
At present, Americans still have a lot of money in their pockets, it’s just a matter of whether they are willing to spend it on consumption or investment. The overall currency stock is still considerable. The price of Bitcoin is undervalued at this stage. US$70,000 is a reasonable price, but in the short term, Bitcoin may fall to US$50,000. Users who are suitable for long-term investment can enter the market and slowly accumulate chips. There may be big discounts in September. It is a better strategy to avoid leveraged trading as much as possible.
Continuing with the previous argument, the next market fluctuations will be very difficult to predict, and the interpretations of various indicators will vary greatly. In the end, it will depend on which side has greater strength. In the absence of objective market standards, it will be difficult for traders to bet on the same direction. For example, the next data point is the consumer price index (CPI) in August. If nothing unexpected happens, inflation will continue to slow down, and even with the recent collapse in oil prices, inflation may fall further.
At this time, the price of Bitcoin will rise again in the short term, but whether it can continue depends on the subsequent economic data. The long and short factors are too complex and difficult to predict, and the difficulty of market transactions will increase sharply. Reducing leverage is a safer approach.
Bitcoin would be an even better choice than Ethereum, which has recently lost a lot of funds due to the decline in staking rewards and misjudged the loss of transaction fee income caused by the Ethereum Layer-2 airdrop craze. To enjoy the stimulating buying brought about by a sharp interest rate cut, Bitcoin would be a more stable investment target. If the price continues to fall in the future, it will be a good opportunity to enter the market.
