Market update

Cointree Crypto Market Update - August 7th 2024

Market report for traders

🔮 BTC and altcoins

Over the last 7 days, Bitcoin ends at AU$86,875, moving -14.65% at the time of writing. Meanwhile, Ethereum ends at AU$3,831 tumbling -24.47% week-on-week. On the Altcoin side, Solana is also down -17.75%, Cardano -17.50%, and Pepe -30.77%.

🗞 What’s caused this market mayhem?

Have you checked your crypto portfolio lately? If not, don’t panic. While the market has taken a big hit, understanding why can help put your mind at ease. Here’s what happened and why it’s not the end of the world.

The Unexpected Catalyst: Bank of Japan's Rate Hike

On July 31, the Bank of Japan (BoJ) raised interest rates from 0% to 0.25%. This small change had a big impact, especially on a trading strategy known as the yen carry trade. Traders borrowed yen at low rates to invest in higher-yielding assets like US dollars. When the BoJ raised rates, the cost of these loans increased, causing traders to quickly sell off their investments.

“Surging costs on yen-denominated loans caused the crash. Now, markets are set for a healthy rebound as traders finally pare back leverage and exposure to the yen,” notes Cointelegraph.

Leveraged Trading: A Double-Edged Sword

Crypto trading often involves borrowing money to increase potential gains. However, this also means increased risk. Before the crash, traders had borrowed nearly $40 billion. The rate hike made these loans expensive, forcing a massive sell-off.

More than $1 billion in trades were liquidated between August 4-5, leading to Bitcoin and Ethereum prices dropping by about 18% and 26%, respectively.

Geopolitical Tensions Adding Fuel to the Fire

The Bank of Japan’s rate hike wasn’t the only factor. Global tensions, such as the conflict between Israel and Iran, added more uncertainty to the markets. Political changes in the US also contributed to the volatility.

Whale Activity and ETF Movements

During the downturn, large investors, known as whales, bought more crypto while smaller investors sold off their assets in panic.

Bitcoin wallets holding between 1,000 and 10,000 BTC, worth between $56 million to $560 million, showed confidence during the dip. Meanwhile, wallets with less than 1 BTC saw the most significant sell-off.

US-listed spot bitcoin exchange-traded funds (ETFs) saw $168 million in net outflows on Monday. However, BlackRock's $18 billion IBIT fund had no net outflows, showing some stability.

So What’s Next?

Despite the recent crash, there are signs of recovery. As traders reduce their leveraged positions and yen loans, the market could bounce back. The USD/JPY exchange rate might stabilise, bringing relief to borrowers.

In summary, while the recent crypto crash has been significant, it's a reminder of the market's volatility. By understanding the factors at play, investors can better navigate these turbulent times and prepare for the upcoming market.