Bitcoin and crypto markets saw a strong recovery on Tuesday, with Bitcoin crossing the $56,000 mark and Ethereum surpassing $2,500, recovering from a “Monday low.” Yesterday, Bitcoin fell more than 15%, touching lows near $49,000, while Ethereum dropped more than 20% to a low of $2,115. The Bitcoin and cryptocurrency recovery coincided with a broader recovery in global financial markets, driven by several key factors.
Nikkei #1 Index Rises, Bitcoin Follows
Japan’s Nikkei 225 stock average staged a record recovery after its biggest drop since the Black Monday crash of 1987. The index rose 10.23% to close at 34,675.46. The rebound came after a sharp 12.4% plunge on Monday, driven by global market volatility and fears of an impending recession in the United States, along with complications arising from the yen’s de-pegging from the “carry trade.”
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Popular cryptocurrency analyst JACKIS (@i_am_jackis) Note Via X: “I think crypto is currently reacting to macroeconomic conditions, but nothing specific is happening to crypto itself in my opinion. Here is Bitcoin and Nikkei for comparison. When macroeconomic conditions stabilize, Bitcoin/crypto is expected to rise even more strongly, but caution is advised until then.”
#2 ISM Services Data Positive
The U.S. Institute for Supply Management reported Monday that its non-manufacturing purchasing managers’ index rose to 51.4 in July from 48.8 in June, the lowest level since May 2020. The index measures the health of the services sector, which makes up more than two-thirds of the U.S. economy. A PMI above 50 indicates expansion, and the latest data points to a rebound in service sector activity, easing some concerns about an impending recession.
Eric Wallerstein of the Yardeni Research Center I expressed “Relief and cautious optimism on the data: ‘Wow, maybe the US economy isn’t collapsing? ISM service sector employment rose 5 points to 51.1. The overall PMI is expanding,’” he said via X.
Andreas Steno Larsen from Steno Research also Hang onHe highlighted the fragility of market sentiment: “ISM services are far from recession territory again. I’m not sure it’s strong enough to convince the markets. We’re not trading macro right now. We’re trading leveraged stops.”
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Ram Ahluwalia, CEO, Lomeda Wealth, Added“ISM Services is rallying, mirroring the signal from last Friday’s ISM Manufacturing data. No recession, folks. This is a technical/positional correction. Keep in mind that earnings are up 12% YoY vs. 9% consensus. This is not at the tipping point of a recession.”
#3 The market is expecting sharp rate cuts from the Fed.
Financial markets are currently pricing in significant monetary easing from the US Federal Reserve. According to CME Federal Reserve Monitoring ToolThere is now a 73.5% chance of a 50 basis point rate cut by September, with a 25 basis point cut now considered a certainty. This shift in expectations reflects a dramatic change in sentiment from just a week ago when the likelihood of such cuts was much lower.
Matt Hogan, CTO of Bitwise, emphasized the rapid shift in market dynamics: “A week ago, the market was pricing in an 11% chance of a 50bp rate cut in September. Today, it’s 100%. Things are coming at you fast,” he said via X.
#4 Overreaction
The market collapse was exacerbated by what some analysts described as an overreaction to fears of a U.S. recession. Economist Alex Krueger pointed out Cyclical fluctuations in fear-driven market behavior.
“The world is in a state of mass hysteria over fears of a US recession. Allowing price action to create a narrative feeds into price action as everything goes down in a negative feedback loop. The volatility index hits 65, the third highest in history. Then comes a strong rebound this morning at the open as ISM data shows better-than-expected demand and employment growth,” Krueger said.
At the time of publishing this report, BTC was trading at $56,010.
Featured image created using DALL.E, chart from TradingView.com