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The cryptocurrency market is in a major downturn today. Bitcoin’s price has dropped nearly 10%, falling to around $54,000, while Ethereum has fallen by about 20% in the last 24 hours.
Overall, the crypto market cap has decreased by 16.19%, now sitting at $1.89 trillion.
Several factors have contributed to the current crypto crash, let’s take a look at why the market is crashing
Fear of recession:
- Many people are worried that the U.S. economy might go into a recession soon. The latest U.S. jobs report revealed that only 114,000 jobs were added in July, which is far below expectations. Additionally, the unemployment rate rose to 4.3%, raising fears of an economic slowdown that could affect the global market.
- According to Truflation (a decentralised platform that provides real-time economic and financial data), the US inflation rate is 1.54% which is reported as 3% by the government. Food and Beverages prices went down -0.54% from last month and -1.24% from last 3 months.
- Housing is now budget-friendly by -0.19% than last month and -1.59% from last 3 months. Transport, education, and household daily items became cheaper than last month. You can check the whole dashboard from here.
- A drop in inflation indicates that the cost of goods and services is stabilizing or even falling, which can provide some relief to consumers and rising unemployment rate can lead to less spending by consumers and lower investment by businesses. If people feel uncertain about their jobs, they are likely to spend less money. This cautious behaviour can make businesses unwilling to invest in new projects or hire more workers, which could lead to a recession.
Japan’s latest interest rates:
- The Bank of Japan (BoJ) has increased interest rate to “around 0.25%,” up from the previous range of 0% to 0.1%. Japan’s central bank has raised the interest rates for only the second time in 17 years. This has affected Japan’s stock market index. These changes in Japan have increased uncertainty in global markets, including the crypto market.
Stock market impact:
- The stock market has dropped recently, and this is having an impact on the cryptocurrency market. On August 2, 2024, major stock indexes like the Dow Jones, S&P 500, and Nasdaq all fell significantly. The Dow lost almost 500 points, closing down 1.2%. The S&P 500 dropped 1.4%, and the tech-heavy Nasdaq fell 2.3%.
- The Nikkei 225 index in Tokyo fell by around 12% on Monday, its biggest single-day drop since the 1987 Black Monday crash, amid a global stock market rout triggered by weak US jobs data and recession fears. The index lost 4,451.28 points, eclipsing its previous record one-day decline of 3,836.48 points in October 1987.
Geopolitical Tensions:
Ongoing conflicts and tensions, especially in the Middle East, have added to the volatility in the markets. Investors are concerned that these geopolitical issues could negatively impact the global economy.
The current combination of fears of a recession, Japan’s interest rate hike, the stock market decline, and geopolitical tensions has contributed to the current crypto market crash.
Historically, during financial crises and COVID, crypto prices have gone down but shown resilience and have bounced back stronger. Cryptocurrency is still in its early stages and is going through regulatory market fit. Considering the value that cryptocurrency like Bitcoin provides from its finite supply, decentralized way of operations, and incentivization through mining, it will play a significant role and will be a strong pillar to ensure stability in the economy. The market’s future will depend on how these factors evolve so stay informed and keep an eye on the market.
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Note: The content of this article should not be considered as financial advice. We have written this piece to analyze for educational purposes only.