Written by: FMG Research
1. Multiple factors that led to the market decline
On August 5, 2024, "Black Monday" reappeared, and the global asset market suffered a major waterfall. The overall cryptocurrency market value fell by 14% in 24 hours, and BTC fell to 48,800, reminiscent of the crash caused by the 2020 coronavirus pandemic.
Looking deeper into the reasons for the plunge, the global risk market crash may be related to Japan's interest rate hike and the US economic recession. Jump's potential black swan may also be seen as a driving factor for the market decline. A large number of liquidations and mortgage liquidations have intensified market selling pressure, leading to a continued decline in the market.
Regardless of panic or greed, outstanding people should learn how to thrive in this fear and make choices.
First of all, this decline was actually foreshadowed. We at FMG briefly summarized and mentioned the macroeconomic situation in June and July. The non-farm payrolls in the United States far exceeded expectations, and the unemployment rate in July also rose to 4.3% beyond expectations, indicating that the United States has entered the early stages of an economic recession. Looking back over the past few months, although global stock markets, including the U.S. stock market, have performed well, there are actually many points that deserve our vigilance. For example, Bitcoin has tried to break through and stabilize at 70,000 for six consecutive times this year, but all failed. Such signals may be selectively ignored due to the high market sentiment.
At the same time, in terms of objective factors, the geopolitical crisis has escalated and the situation in the Middle East has become tense again.
After the assassination of Hamas, Israel faced threats of retaliation from multiple parties, sparking global concerns that the conflict would spread and escalate into a full-scale war in the Middle East. On August 5, the United States warned the Group of Seven that Iran could attack Israel within 24 hours. The military confrontation between Israel and Iran has become increasingly fierce, and the assassination of the Hamas leader has ignited tensions. The worsening of the Middle East conflict indicates that geopolitics will be more turbulent in the second half of the year. Coupled with concerns about macroeconomic recession, Wall Street's fear index (VIX index) has also climbed to its highest point in nearly 18 months.
In the crypto market, large-scale margin calls and Ethereum liquidation incidents occurred frequently.
ETH has always been Jump's main holding. In this round of plunge, Jump's crazy selling is also one of the main sources of ETH selling pressure. According to Parsec data, in the past 24 hours, the lending liquidation volume on DeFi exceeded 320 million US dollars, a new high for the year, of which ETH collateral liquidation volume was 187 million US dollars, wstETH was 77.9 million US dollars, and wBTC was 32.5 million US dollars. Ethereum Gas soared, reaching a maximum of 701 Gwei. I thought it was a bull market.
These liquidation events exacerbated the selling pressure in the market, causing the market to continue to fall.
However, there are also some opportunities behind the big drop. Interestingly, according to Arkham data, BlackRock, MicroStrategy, Grayscale and Fidelity did not sell Bitcoin during the market decline. Matt Hougan, chief investment officer of asset management company Bitwise, also compared this weekend's crash with March 2020 in a market update. He said: "Putting aside emotions, history shows that this weekend's sell-off is a buying opportunity."
2. US stocks, gold, interest rates and Bitcoin
Based on the historical data of 2000/2008/2020, the current crypto market layout is predicted. The main reference indicators are gold/US stocks/US nominal interest rates. Gold broke the previous high this week. The cycle will most likely last until about 6 months after the next rise in nominal interest rates, about 2-2.5 years from now. In other words, from the perspective of the macro cycle, this cycle has just entered the theme.
2008 economic crisis, debt cycle bubble burst historical data
1. During the subprime mortgage crisis, the first interest rate cut was on September 18, 2007. Since then, the U.S. stock market ended the high interest rate pull for 1 year and 3 months, and began to fall sharply until the Federal Reserve cut interest rates to zero (November 13, 2008). After the interest rate reached 0 and the market began to have expectations of rising, it did not directly pull up. The main force carried out another violent decline of about 30%, from January 2009 to March 2009, and since then, the U.S. stock market has opened up an epic bull market of 15 years. It is worth noting that during the 2020 epidemic, the stock market had a large-scale correction. After two circuit breakers, when the nominal interest rate reached 0, the stock market began to move upward.
2. According to data from 2000, the U.S. stock market fell during the two nominal interest rate corrections in 2008 and 2020. Although the new intelligent productivity Internet emerged in 2000, the stock market also fell as the nominal interest rate fell. 2008 and 2020 were the result of debt cycle deleveraging, and the stock market also fell under the premise of falling interest rates.
3. Based on the experience of the three debt cycles in 2000, 2008, and 2020, the US stock market is likely to fall back during the period of nominal interest rate decline, with a small probability of continuing to rise (AI as a stock market dividend brought by the technological revolution), and is unlikely to fluctuate, and the volatility will definitely be very large. Option strategy traders will have a very large profit opportunity.
From this chart, we can see that the correlation coefficient between the benchmark interest rate and gold in 2001 was not large, and gold was not taken seriously. Before the outbreak of the subprime mortgage crisis in early 2007, there were already signs, and the price of gold was pushed up. In 2020, due to the COVID-19 pandemic, the benchmark interest rate plummeted and gold soared, reaching a record high at the time.
In the current stage of high and sideways real interest rates, gold has reached the fair price of the market and is still accumulating momentum. Once the interest rate is cut, gold will start the next interest rate cut cycle. I personally think that Bitcoin is the same. For medium and long-term holders: The logic of gold is very simple. Buy at the beginning of the cycle of gold logic, and sell at the end of the cycle of gold logic (nominal interest rates are low for half a year to one year). However, BTC is a more worthy anti-inflation product than gold in this cycle, because it will be updated, with greater volatility, greater imagination space in the future, and it is likely to reach the same market consensus as gold in the future.
1. From this chart, we can see that during the period of interest rate cuts in 2008, the U.S. stock market fell and then started to rise after the nominal interest rate had been at a low level for a while. On the other hand, gold started to rise from the moment the interest rate cut began and continued to rise until the next time the nominal interest rate rose.
2. During the interest rate cut cycles in 2000/2008/2020, gold and US stocks took completely opposite trends.
Summarize
1. Historically, even during the Internet bubble in 2001, when there was this new type of productivity, the stock market was on a downward trend during the period of interest rate cuts, not to mention 2008 and 2020.
2. At the current stage, it is highly likely that you will make money by going long on gold and BTC. It is just a matter of how much you make. Other crypto assets will follow BTC to reap the dividends. The market always moves forward in a cycle of ups and downs. There is no market that will always rise, nor will there be a market that will always fall. We are still confident in the future market. In a stage full of uncertainty, it is particularly important to remain calm and rational.
The data in this article comes from: Coinmarketcap, Arkham, Macromicro, Parsec, Foresight News
