What caused the cryptocurrency to record a three-day $500 billion plunge?

Compiled by: Deng Tong, Golden Finance

The cryptocurrency market has experienced its largest three-day sell-off in nearly a year, with a drop of up to $510 billion since August 2.

The crypto market fell mainly due to the Bank of Japan's increase in benchmark interest rates; weak US employment data, slowing growth in major technology stocks, and renewed concerns about a recession; Jump's sale of ETH; escalating geopolitical conflicts between Iran and Israel; and seasonal declines.Golden Finance analyzed the multiple factors as follows.

The Bank of Japan raised its benchmark interest rate

The direct trigger for the current large-scale correction in cryptocurrency and traditional markets may be the Bank of Japan, which raised its benchmark interest rate last week.Monetary tightening policies caused the yen to soar and the country's Nikkei index to plummet. The Nikkei index fell another 6% in early trading on Monday, down about 15% in the past three trading days and 20% from its mid-July high.

Japan's Mitsubishi UFJ Bank's decline widened to 21%, with its stock price hitting a record low. Japan's Topix index triggered a circuit breaker mechanism downward. Japan's Topix index fell 20% from its July high and fell into a technical bear market.

Nick Ferres, chief investment officer of Singapore securities investment company Vantage Point Asset Management, said: The sell-off in Japanese stocks was "massive, rapid and emotional."

Japan's Chief Cabinet Secretary Yoshimasa Hayashi pointed out that stock prices are affected by many factors, including the economic situation and corporate activities. No comments are currently made on daily stock market fluctuations. Urgent attention is paid to market dynamics.

US recession concerns lead to market collapse, industry giants are not optimistic about US economic expectations

The negative trend of Japanese stocks spread to the United States, with the Nasdaq index falling more than 5% in the last two trading days of last week. Nasdaq futures fell 2.5% on Sunday night. Several large companies, including Microsoft and Intel, reported second-quarter results that were lower than expected, and market leader Nvidia was hit by expectations of an upcoming interest rate cut in September, causing capital to flow back to smaller, lagging companies.

In addition, Australia's benchmark stock index fell more than 3%, the biggest single-day drop since June 2022. South Korea's KOSPI index fell 5% to 2,542.13 points. The Korea Exchange initiated a temporary suspension of trading, and program trading was suspended for 5 minutes.

Traders' expectations that the Federal Reserve will be able to promote a soft landing for the US economy are changing rapidly. Data released on Friday showed that the U.S. unemployment rate unexpectedly climbed to 4.3%, higher than the Fed's year-end forecast, raising concerns about the SAM recession indicator. "With the unemployment rate higher than expected and core personal consumption expenditure inflation currently below the Fed's year-end forecast, we believe that the balance of risks favors the Fed to take more aggressive action," said Bross, senior U.S. economist at UBS Group AG Wealth Management.

Goldman Sachs Group economists were also not optimistic about the U.S. economic momentum and raised the probability of a U.S. recession in the next year from 10% to 25%, but said there were several reasons not to worry about a recession even if the unemployment rate rises. "We still believe that recession risks are limited," said Jan Hatzius, Goldman's chief economist, in a note to clients on Sunday. The U.S. economy overall looks "still good," there are no major financial imbalances, and the Fed has a lot of room to cut interest rates and can act quickly if necessary. Goldman's forecast for the Fed is less aggressive than that of JPMorgan Chase and Citigroup. Hatzius' team expects the Fed to cut interest rates by 25 basis points in September, November and December. JPMorgan Chase and Citigroup expect policymakers to cut interest rates by 50 basis points in September.

Not only major financial giants, but also Warren Buffett, the stock god, seems to have foreseen this. Buffett's Berkshire Hathaway reduced its Apple holdings by nearly half in the second quarter. Its holdings are now about $84 billion, down from about $140 billion at the end of March, and the company sold a net $75.5 billion of stocks in the second quarter, bringing its cash reserves to a record $276.94 billion, including cash equivalents.Berkshire Hathaway has previously reduced its holdings of its second largest holding, Bank of America, for twelve consecutive days. Berkshire Hathaway's net profit in the second quarter was $30.3 billion, and its operating profit excluding some investment income increased to $11.6 billion.

Musk said that Buffett obviously expected some kind of market correction, or simply thought there was no better investment than U.S. Treasuries, as Buffett increased his cash reserves to $277 billion in the second quarter. The Fed needs to cut interest rates, and they would be foolish not to do so.

Jump sells ETH

On-chain analyst Ember monitors that Jump Trading may be selling ETH: They are currently redeeming a $410 million wstETH (120,000) in batches into ETH and then transferring it to exchanges such as Binance/OKX. So far, they have unpacked 83,000 wstETH and redeemed it into 97,500 ETH in the 9 days since July 25. Of these, 66,000 ETH ($191.4 million) have entered the exchange.  

Currently, there are 37,600 wstETH in their wstETH storage address that have not been transferred out; 11,500 stETH in the redemption ETH address are being redeemed into ETH; 20,000 ETH in the ETH transfer exchange address are waiting to enter the exchange in batches.

According to Arkham Intelligence data,Some market commentators also see a series of sell-offs by Jump Crypto as an exacerbating factor. The trading company has sold hundreds of millions of dollars of assets from its books in the past few days.

According to Coingecko data, the market value of Ethereum has fallen below the $300 billion mark. According to MarketCap data, due to the short-term decline of ETH, the current market value of Ethereum has been surpassed by LVMH, Coca-Cola and Bank of America, falling to the 40th place in global assets.

Iran-Israel geopolitical conflict escalates

According to AXIOS, three people familiar with the matter said that U.S. Secretary of State Blinken told G7 leaders on Sunday that attacks by Iran and Hezbollah on Israel could begin as early as Monday. Blinken called the call to coordinate with allies and try to exert last-minute diplomatic pressure on Iran and Hezbollah to minimize their retaliation. He stressed that limiting the impact of the attack is the best chance to prevent an all-out war. Sources said Blinken stressed that the United States believes both Iran and Hezbollah will retaliate. Blinken said it is unclear what form Iran's retaliation will take. Sources said Blinken told the G7 foreign ministers that the U.S. troop increase in the region is only for defensive purposes. At the same time, Blinken sounded frustrated when briefing the ministers on recent negotiations with Israel on Gaza hostages and a ceasefire agreement.

Lebanon's Hezbollah announced that it used multiple drones to attack the headquarters of the 91st Division of the Israeli Army in Ayelet HaShahar in the early morning of August 5. Lebanon's Hezbollah said the attack was a response to the assassinations and attacks launched by the Israeli army in multiple locations in southern Lebanon.

Several countries have issued warnings about the recent security situation in the Middle East: France urged French citizens in Lebanon, especially French citizens traveling in Lebanon, to "leave Lebanon while commercial flights are still operating", and recommended that French citizens living in Iran temporarily leave Iran if they are able; Italy asked Italian citizens not to travel to Lebanon, and urged Italian citizens already in Lebanon not to travel to southern Lebanon and to take commercial flights back to Italy as soon as possible; Saudi Arabia once again called on Saudi citizens in Lebanon to evacuate from Lebanon; Brazil recommended that Brazilian citizens living in or passing through Lebanon leave Lebanon, and also asked Brazilian citizens not to go to Lebanon unless necessary; Britain announced the withdrawal of the families of its embassy staff in Lebanon and once again called on its citizens to leave Lebanon.

Seasonal decline trend

Coinbase analysts David Duong and David Han said that August is usually a month that is not conducive to the influence of seasonal factors in the cryptocurrency market. Historically, market activity in August is relatively sluggish.For example, compared with June 2023, Bitcoin spot trading volume in August of the same year fell by 19%. Bitcoin futures trading volume on global centralized exchanges also fell by 30% during the same period. They added: "Over the past five years, Bitcoin has fallen an average of 2.8% in August, and the reduction in liquidity and trading volume may lead to increased volatility in August." Coinbase analysts said that this year we may see the same sluggish market performance.

Prediction of BTC's future market

10x Research analyst MarkusThielen pointed out: It is clear that the US economy has been weaker than the Federal Reserve initially thought in the past 48 hours, and the weak ISM index has brought a shock to risky assets. The Federal Reserve hinted that a rate cut in the fall would not stop the economic downturn. If the stock market follows the downward trend of the ISM manufacturing index and even begins to anticipate an impending recession, stocks could fall sharply in the coming quarters. If this happens, Bitcoin could suffer a sharp sell-off, with its price falling below $50,000 or even lower. Dan Dolev, senior analyst at Mizuho Securities, said: Bitcoin is not yet the safe-haven tool that people hope for. If unemployment rises and people lose their jobs, investors will have to cash out their tokens. This also means that Bitcoin may be at risk of falling again.

Circle co-founder and CEO Jeremy Allaire said: "I am as bullish on the crypto industry as I was six weeks ago. Focus on technology, industry and adoption. In the face of global macro fluctuations, don't pay attention to the price of digital commodities unless you are just trading."

Source: Golden Finance, Jinshi Data, CoinTelegraph, CoinDesk.