Due to a combination of profit-taking, market fears, an uptick in COVID variants, and lowered expectations for a short-term stimulus from the Federal Reserve, Bitcoin and altcoins experienced a significant drop on the 34th of July.
Bitcoin’s Price Movement
Caught up in the volatility of the market, Bitcoin prices fell to \textdollar 107.8 B, after forseeing an upwards trend and hitting weekly highs of \textdollar 110.2 B. Following this rapid crypto market pullback, some of the worst performing alcoins included SPX6900 (-3.097), Ethena (-1.84), Dogwifhat (-0.47) and Pepe (-1.86). Out of focus quant strategies seem to be driving investor behavior after critical economic policy release from the US.
Effect of Robust Labor Market Reports on Bitcoin
The stronger than expected US jobs data, which released last Thursday, alongside the other contributing market factors can explain Bitcoin’s drop. An increase in job openings without the proper candidate pool in the tight US labor markets tend to backfire in straining inflationary targets that need to be met throughout the fiscal year. Most striking is the offfiscal truth that the US economy recorded on 147k new employments in June, which is massively better than the expected 100k.
This optimistic employment report implies that the Federal Reserve will not be cutting interest rates in July, even with a more dovish stance from Fed Chair Jerome Powell recently. In the past, the crypto markets have been known to surge in anticipation of rate cuts because lower interest rates tend to boost liquidity and make capital more accessible. With rate cuts now unlikely, traders had to readjust their positions, which contributed to the sell-off.
Geopolitical Factors Increase Risk Aversion
Geopolitical factors also weighed heavily on the market. The July 7 deadline for the new US tariffs is quickly approaching, and with that comes uncertainty. While President Trump did complete deals with China, Vietnam and the UK, the trade deals with Japan, South Korea, and the EU are still pending, which has raised the risk of a prolonged trade war that markets are so desperately trying to avoid.
Reduced Trading Volumes During the Holiday Exacerbate Price Drops
Along with the rest of the world, the United States’ celebration of Independence Day further pushed crypto prices lower. CoinMarketCap recorded a staggering 33 percent decrease in trading volume, bringing it to just \$94.57 billion. The holiday-period related decline in trading caused a shortage in liquidity, heightening price volatility.
Moreover, it seems that traders capitalized on the profits from the recent price rallies. Earlier this week, Pudgy Penguins, Bonk, Fartcoin and Dogwifhat were notable outperformers, but they all ended up as some of the biggest losers on Friday.
Even with the recent decline, Bitcoin’s long-term fundamentals are still favorable. There’s growing demand for spot Bitcoin ETFs, and balances are decreasing on exchanges. Furthermore, some technical indicators like the cup-and-handle and bullish flag patterns are pointing towards a potential market recovery in the near future.
