Author: Binance Research Source: binance Translation: Shan Ouba, Golden Finance

Key Points

• Stock and cryptocurrency markets have experienced significant volatility in recent days. Macroeconomic, political, geopolitical and cryptocurrency-specific factors are the main factors.

• Despite these challenges, we do not believe that this indicates a long-term negative trend in the cryptocurrency market. We highlight some indicators worth watching in the second half of this report.

Market Downturn

The past 24 hours have been challenging for the cryptocurrency markets, with most major coins falling double-digits across the board. During the same period, the total cryptocurrency market capitalization has fallen by nearly 20% from $2.16 trillion to $1.76 trillion. This latest plunge is the latest chapter in a broader downward trend that began on Monday, July 29. Since then, the total market capitalization has fallen from $2.48 trillion to its current level, a drop of 28% in a week.

Figure 1: After more than 5 months of range-bound trading, the total cryptocurrency market capitalization plummeted 28% in a week

Looking at the performance of the top tokens by market cap, one trend is clear: no token has been immune to the recent decline. Among the top 10 non-stablecoin, non-derivative assets, DOGE had the worst 24-hour performance, down 22.7%. Conversely, TRON had the strongest performance, down 7.1% on the day.

Figure 2: Among the top 10 assets by market cap, DOGE has the largest 24-hour drop of 22.7%

The decline in token prices also triggered large-scale liquidations. On August 5, traders on major exchanges experienced more than $819 million in liquidations (about $688 million long and about $131 million short), the largest single-day liquidation volume since April 13, 2024.  

Figure 3: On August 5, traders on major exchanges suffered more than $819 million in liquidations

Drivers of Market Weakness

A number of factors could have contributed to the market weakness. We have summarized some of the key drivers in the next section.

1. Macroeconomic Weakness and Spillover Effects

Global stock market indices have fallen sharply over the past few trading days. Concerns about a hard landing for the US economy and a sharp drop in Tokyo stocks have kept investors on high alert. Risk aversion has spread to the cryptocurrency market, with investors taking a cautious approach and pulling out of their holdings.

Weaker-than-expected employment data released last Friday sparked concerns about a US recession. The unemployment rate rose to 4.3%, the highest level since October 2021, and job growth in June was lower than expected (non-farm payrolls increased by 114,000, while expectations were 175,000). This triggered a broad sell-off in US stocks, with the Nasdaq becoming the first major US stock benchmark to enter correction territory, down more than 10% from its all-time high. Overall, the poor data raised concerns among investors that the Federal Reserve may be too slow to cut interest rates to avoid a recession.

Figure 4: U.S. unemployment rate rises to highest level since October 2021

Asian stocks suffered a similar plunge, with the MSCI Asia Pacific Index falling 6.7%, erasing most of its gains for the year. Notably, Japan's stock market became the center of the sell-off after entering a bear market, with the Nikkei 225 index plunging 12.4% on Monday, its biggest one-day drop since 1987.  

Figure 5: The Nikkei 225 Index fell 12.4% in a single day, the worst performance since "Black Monday" in 1987

2. Resistance from the United States

In political news, U.S. Vice President Kamala Harris is gaining support among voters as a potential candidate for the upcoming U.S. election. Decentralized prediction platform Polymarket currently predicts a 44% chance of Harris winning, up from about 30% when current President Biden withdrew and endorsed her as his successor. Harris has not yet lived up to Trump's recent pro-cryptocurrency rhetoric. This may be a factor that worries investors.  

In addition, Warren Buffett's Berkshire Hathaway sold nearly half of its Apple shares and other stocks last quarter, bringing its cash reserves to a record $276.9 billion, according to the latest filings. The "Oracle of Omaha"'s decision to increase cash holdings may make some investors worried about the future price trend of stocks, especially technology and growth stocks.  

3. Geopolitical Tensions

Tensions in the Middle East appear to be escalating, with the conflict between Iran and Israel in the spotlight.  

Market participants will undoubtedly be concerned about the macroeconomic and geopolitical impacts that the standoff may have. Shares of defense manufacturer Lockheed Martin are said to have risen by about 20% over the past month as investors expect tensions to escalate further.

Growing panic and geopolitical uncertainty may prompt investors to remain cautious about risky assets, further contributing to the market downturn.

4. Large-scale on-chain transactions

In addition to the above-mentioned, mainly macroeconomic and political factors, there are also some cryptocurrency-related tensions in the market.  

There are reports that Jump Trading’s cryptocurrency arm, Jump Crypto, is in the process of liquidating many of its positions, especially ETH. There have been rumors that Jump may be exiting the crypto market making business, and as such has been slowly unwinding its positions. While these rumors have not been confirmed, their on-chain wallets (marked by Arkham) show a lot of activity, including the sale of around $300 million in staked ETH from just one wallet.  

The US spot ETH ETF has also had a lackluster performance since launch, with inflows in just three of the nine trading days, and a total net outflow of $511 million.  

These factors may have exacerbated market volatility, especially the news about Jump Crypto, given its size and market influence. As these news also center around ETH, they may also have caused ETH to underperform relative to other major tokens.  

With the stock market falling sharply and economic data weaker than expected, attention is focused on the next monetary policy decision in the United States. Markets are currently considering multiple rate cuts for the rest of the year, including a possible 0.50% cut in September, a dynamic that is a sharp departure from expectations at the July Fed meeting. In addition, bond market data shows that more and more traders are betting on an emergency rate cut, with a 60% chance of a quarter percentage point cut as early as next week. Regardless, sentiment towards risk assets such as stocks and cryptocurrencies may remain fragile as markets anticipate an imminent rate cut and weigh the prospects of a soft landing and recession in the United States.    

Outlook and Conclusion

Asset prices in both traditional and crypto markets have fallen swiftly and painfully on a massive scale. As we are still in the early stages of this market crash, we expect markets to continue to be volatile. We will continue to monitor the following:

• Stock Market Performance: The correlation between global stock market indices and the cryptocurrency market has increased. If global financial market conditions do not recover, it may be difficult for crypto assets to make a comeback. Likewise, stronger stock markets are good for risk assets such as cryptocurrencies.

• Central Bank Policy: The next Fed policy meeting is scheduled for September, but it is worth watching how much the Fed will cut. In recent days, the probability of a 0.50% rate cut has increased (rather than a 0.25%). Some market participants are also speculating that the Fed may hold an emergency meeting before September.

• On-chain movements of whales: Large players have the power to move the market. Any purchase or sale can have a considerable impact on the price and may also be an indicator of their view on the market.