Cryptocurrencies faced significant declines on Monday as global markets exhibited heightened risk aversion. Bitcoin, the leading digital asset, fell over 16% at its lowest point, while Ether, the second-largest cryptocurrency, experienced its steepest drop since 2021.
By 8:39 a.m. in London, Bitcoin was trading 11% lower at $52,680, compounding a 13.1% drop from the previous week—the most substantial since the collapse of the FTX exchange. Ether saw a decline of over 20% before partially recovering to $2,342. Most major cryptocurrencies were affected, showing similar losses.
The downturn in crypto markets coincides with an intensified global stock selloff, driven by concerns about economic prospects and skepticism regarding the potential of heavy investments in artificial intelligence. Rising geopolitical tensions in the Middle East have further exacerbated investor unease.
On August 2, U.S. Bitcoin exchange-traded funds recorded their largest outflows in approximately three months. The future of these products remains uncertain as they await a potential rebound or further declines.
Carry Trade Impact
The unwinding of the yen carry trade has contributed to the current volatility in digital assets, as speculators adapt to rising interest rates in Japan. Hayden Hughes, head of crypto investments at Evergreen Growth, noted that investors are also facing increased hedging costs due to fluctuations in the USD-JPY exchange rate.
Since reaching an all-time high of $73,798 in March, Bitcoin has been impacted by various factors, including political uncertainty in the U.S. with the presidential race between pro-crypto Republican Donald Trump and Democratic Vice President Kamala Harris, who has yet to present a clear digital asset policy.
Additional market uncertainties include potential Bitcoin sales by governments and the risk of supply imbalances from tokens returned through bankruptcy proceedings.
Federal Reserve Outlook
Bond traders are increasingly anticipating U.S. interest rate cuts starting in September to support economic growth. According to Sean Farrell, head of digital asset strategy at Fundstrat Global Advisors LLC, this potential shift in monetary policy could benefit cryptocurrencies.
At its lowest on Monday, Bitcoin’s value reverted to levels last seen in February, while Ether fell to prices from earlier in the year. The reaction of investors to new U.S. spot-Ether ETFs remains uncertain.
Justin D’Anethan, head of Asia-Pacific business development at Keyrock, suggested that Ether led the recent crypto downturn, noting social media speculation about institutional selling of Ether-related assets.
Coinglass data revealed that approximately $900 million in bullish crypto positions were liquidated over the past 24 hours, indicating that leveraged positions were unwound.
Khushboo Khullar, a venture partner at Lightning Ventures, described the current market conditions as a “fine buying opportunity” despite the ongoing slump. Bitcoin’s year-to-date gains have decreased to around 21%, compared to an 18% increase in gold and an 8% rise in global stock indices.
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