Difficulties that the market must endure before growth
Bitcoin most days of August was trading stable between 22,000 and 24,000 USD. On Friday suddenly fell towards 22,700 and then continued to lose more to 21,404 US dollars, to a three-week low with more than 7% daily loss.
Sell-off did not happen just in the BTC chart, ETHUSD lost 7.5% to trade around $1,700, and XRPUSD, at its daily low so far at $0.327, lost more than 10%. According to CoinMarketCap data, total crypto market capitalization is down 4.2% to $1.07 trillion.
While we do not have a specific reason for this sell-off, however overall sentiment and outlook of financial markets can tell us what is happening there.
On the news front, the report about the Korean authority's investigation of 16 crypto exchanges about the accusation of breaking local laws and providing digital asset trading services to Korean citizens also could put some pressure on the markets. At the same time, with more doubts about stablecoins, Tether, the issuer of the largest stablecoin by capitalization, announced the partnership with Italian accounting firm BDO and planned to report monthly instead of quarterly financial results.
If you look at the stock markets, you can also see the same negative sentiment there. Recession fear in Eurozone and increasing tightening policies by FED increased the pressure on the share prices. Suppose we add the US-China tensions over Taiwan and concerns about the health of China's economy in line with the Yuan free-fall. In that case, we can better understand rapidly increasing market risks, which are usually negative for risky assets, including cryptocurrencies.
Yesterday we had mixed data from the US market as well. While the labor market started to improve after two weeks of increasing initial jobless claims and an excellent US Philadelphia Fed manufacturing index for August, housing market data started to show some weakness. Overall, data shows that, for now, the US economy could be strong enough to handle higher rates.
In addition, after the data was released, several Fed officials delivered speeches one after another. The stance of most officials remains hawkish, with San Francisco Fed President Daly saying that "a 50 or 75 basis point hike in September is reasonable" and that "rates need to be slightly higher than 3% by the end of the year", but ultimately it still depends on the data and strikes a balance. In addition, Bullard, the big hawk, expressed his preference for a 75 basis point rate hike in September and hoped that rates could be raised to 3.75% to 4% by the end of 2022. Other officials who also support a 75 basis point hike include Kashkari. The only dovish stance is Kansas Fed President George. She said the Fed "has done a lot" and should "look carefully at follow-up developments" given that "policy decisions are lagging."
These data increase the pressure on the market cash flow and move that towards safer assets. We can see this pressure on the technical charts as well. Stochastic at 12 in a clear downtrend in the daily charts clearly shows that even if in the smaller time-frames we see some correction, still overall picture is bearish. BTC created a strong resistance at 25,000 US Dollars, and trading under this level can confirm the deeper levels to come.
