Last weekend, the July non-farm payrolls data from the United States came out, and the results were much worse than expected, and the unemployment rate unexpectedly rose. This made people begin to worry that the US economy might enter a recession. The market was relatively calm over the weekend, but on Monday, the Asian market saw violent fluctuations as soon as it opened. The stock markets in Japan and South Korea triggered the circuit breaker mechanism, and the price of Bitcoin also fell from nearly $60,000 at 4 a.m. to $49,000.

Generally speaking, the rise in asset prices is a slow process that needs to be done step by step, but sometimes, a sharp drop in one or two days can wipe out months or even years of gains. It is hard to say whether this short-term sharp drop in the financial market will rebound quickly like in early 2020, or continue to fall. We need to continue to observe the market's reaction and further economic data.

Bitcoin falls below $50,000, Japanese and Korean stock markets trigger circuit breakers

Let's review what happened in the market on the morning of "Black Monday".

The "1987 version of Black Monday" was staged again yesterday, with global financial markets collapsing and plummeting, and words such as circuit breakers, bear market, and historical records were everywhere.

The Nikkei 225 and Topix index both plunged more than 12%, triggering circuit breakers several times during trading. The Taiwan stock market recorded its biggest drop since 1967, South Korea recorded its biggest drop since 2008, and the Dow Jones Industrial Average fell more than 1,000 points, recording its biggest drop in two years together with the S&P. Futu, Fidelity and others warned of trading failures.

The last time the global market experienced such a tragic baptism was the stock market crash on October 19, 1987.

At that time, stock markets in Asia and the Pacific plunged, with the Nikkei index falling 14.9%, the Hang Seng index plummeting more than 40%, and the New Zealand stock index even plummeting 60%. The US market also fell into chaos, with the Dow Jones Industrial Average plummeting 22.6% and the S&P 500 index plummeting 30%. About $1.71 trillion in global stock markets was wiped out.

In addition to being similarly shocking, the triggers for the two plunges were also similar, with arbitrage trading and programmatic trading undergoing a "big reversal." Learning from history, what will happen next? Will the Federal Reserve once again step in to "save the market"?

The traditional financial market is not doing well either. Today, the Asian, European and Australian stock markets have all suffered a bloodbath.

Let's review what happened in global stock markets last Monday.

South Korea's KOSPI index closed down 8.78% that day, and the intraday decline once widened to 10%. This was the largest single-day drop since October 2008, and it once triggered the circuit breaker mechanism.

The situation of Japan's Nikkei 225 Index and Topix Index was similar. The Nikkei 225 Index closed down 12%, and plunged 15% during the session; the Topix Index closed down 13%. Both indexes triggered a second suspension. The Nikkei 225 Volatility Index rose to 132%, setting a new record for a single-day increase.

India's NIFTY and SENSEX indices also fell 3%, while India's stock volatility index rose 52%, the biggest gain since August 2015.

Taiwan's weighted index closed down 8.35%, its worst single-day performance ever, while Australian stocks closed down 3.6%, its worst performance so far in 2020.

The Turkish stock market triggered a market-wide circuit breaker shortly after it opened, followed by a secondary circuit breaker.

European stock markets also opened sharply lower, with Germany's DAX and Euro Stoxx 50 both down 3%, and Italy's FTSE MIB down 4%.

There were early signs of risk, but the market selectively ignored them

The Fed's July interest rate decision. They decided to keep the interest rate unchanged, but Fed Chairman Powell has already hinted at the press conference that there is a high possibility of a rate cut in September. As long as there are no major surprises in the August data, a rate cut in September is basically a foregone conclusion. The market generally believes that this rate cut is a "defensive rate cut". Although inflation has not returned to the expected level, it has shown a downward trend, and the unemployment rate is also falling. Therefore, using rate cuts to stabilize employment, even if inflation rebounds slightly, it is still within controllable range.

But just when everyone thought that the US economy was still strong and that the interest rate cut would further release liquidity, the actual data dealt a heavy blow to the market. Last Friday, the US released the seasonally adjusted non-farm payrolls data for July, which was only 114,000, far below the expected 175,000; the unemployment rate also rose to 4.3%, triggering the "Sam's Rule", which usually means that the US economy may have entered the early stages of a recession.

Although some Fed officials later made some optimistic remarks, the market still chose to vote with its feet. The S&P 500 and Nasdaq both fell by more than 2%, and the price of Bitcoin once fell to around $61,000. Looking back over the past few months, although global stock markets, including U.S. stocks, have performed well, there are actually many signals that deserve our attention, which may have been ignored due to the high market sentiment.

Market sell-off and reasons

Over the past week, the crypto market has experienced the most turbulent sell-off in nearly a year. The price of Bitcoin has plummeted from an eye-catching $70,000 to more than $52,000, and the price of Ethereum has plummeted from $3,300 to $2,100. The market value of the entire crypto market has rapidly decreased by nearly $500 billion, as if a dam has burst. This violent market turmoil has panicked investors and they are looking for the reasons behind it.

The weakening of the U.S. economy and the decline of the Japanese stock market were like a bombshell, and its shock waves quickly spread to many capital markets around the world, with the U.S. market being particularly affected. The U.S. Nasdaq index fell more than 5% in the last two trading days of the week, and Nasdaq futures were also hit hard on Sunday night, falling 2.5%.

Against this backdrop, major technology companies, such as Microsoft and Intel, released earnings reports that were below market expectations, casting a shadow on investor confidence. Nvidia was hit hard by the market's disappointing expectations of interest rate cuts, and its stock price fell sharply. These negative news caused capital to flee large technology companies and flow back to smaller and underperforming companies.

UBS Group closely monitors market dynamics and points out that the US unemployment rate unexpectedly climbed to 4.3%, which is much higher than the Fed's expectations, further triggering market concerns that the US economy is about to fall into recession. Goldman Sachs Group then reassessed the future economic situation and significantly raised the probability of a US recession in the next year from 10% to 25%. However, Goldman Sachs Group still insists that although the risk of recession has increased, it is still within controllable range overall.

It is worth noting that Buffett, the legendary figure in the investment community, made an eye-catching decision through his Berkshire Hathaway company. He significantly reduced his stake in Apple and significantly strengthened his cash reserves. This move undoubtedly shows Buffett's keen prediction that the current market is about to face a major adjustment, and it also further aggravates the market's uneasiness.

Jump Trading sells off ETH. In the turbulent situation of the crypto market, on-chain analyst Yu Jin has monitored with his keen insight that Jump Trading is methodically and massively selling off ETH in batches. Recently, they decisively redeemed a sum of wstETH worth up to $410 million for ETH and quickly transferred part of the ETH to the exchange. This aggressive operation is seen by market commentators as one of the key factors that exacerbated the market's selling pressure.

Due to Jump Trading’s important position and influence in the market, its large-scale selling behavior triggered panic among investors, causing ETH prices to fall further and having a chain reaction on the stability of the entire cryptocurrency market. Many investors followed suit and sold their ETH and other crypto assets, exacerbating the downward trend of the market.

The escalation of geopolitical conflict between Iran and Israel The changing geopolitics has also had an impact on the crypto market that cannot be ignored. According to AXIOS, US Secretary of State Blinken issued a serious warning that Iran and Hezbollah are very likely to launch a military attack on Israel. The escalation of this tension has undoubtedly cast a shadow on the sentiment of the global financial market.

In the crypto space, investors are extremely sensitive to geopolitical risks. Fearing that potential military conflicts could cause global economic instability, which in turn could affect the market demand and prices of cryptocurrencies, investor panic spread rapidly. This uncertainty further exacerbated the volatility of the crypto market, making investors more cautious and significantly reducing market trading activity.

Seasonal market decline Coinbase analysts pointed out by digging into historical data that August is usually a relatively weak month for the cryptocurrency market. Historical trading data clearly shows that Bitcoin’s average decline in August was 2.8%. During this period, market participants tend to become less active, resulting in significant reductions in liquidity and trading volume.

This seasonal market law, to a certain extent, reflects the behavior patterns of investors and the cyclical characteristics of the market. Due to factors such as summer holidays, many investors may reduce trading activities in August, which will change the supply and demand relationship in the market, leading to more price fluctuations.

The recent downturn in the cryptocurrency market has opened the door for strategic investors. Certain altcoins are showing strong signs of a possible rebound. Readers will discover which digital currencies are expected to see significant growth in the next quarter. As the market stabilizes, these promising investments could deliver significant returns.

  • RENDER

Render (RENDER) has been navigating challenging markets, however, several key indicators suggest a recovery in the near future. Despite the recent price decline, current resistance and support levels show a relatively solid price range, which provides a solid foundation for price increases. Looking ahead to the next three months, RENDER is expected to achieve gains of more than 20% if bullish momentum strengthens. At the same time, core technical indicators such as the RSI suggest a possible reversal in market trends, which means that the current period contains potential lucrative profit opportunities. As market sentiment gradually turns optimistic, investors can expect to witness a sharp rebound in RENDER.

  • Ripple (XRP)

XRP is currently trading between $0.47 and $0.62, showing some signs of optimism despite the recent downward trend. The cryptocurrency has shown considerable resilience, rising 13.32% over the past month, a performance that highlights its potential recovery capabilities. If bulls are able to push the price above the $0.71 resistance, XRP could have a price target of $0.85, implying a potential upside of around 37% from the upper end of its current price range. Additionally, the RSI has a neutral reading of 46.61, which further suggests that XRP is poised to break out of the current price range. Riding on the positive market momentum, XRP is poised to experience significant growth over the next three months.

  • Cardano (ADA)

Cardano (ADA) has been having some difficulties recently, but there are strong signs that a recovery could be on the horizon. ADA has been trading between $0.31 and $0.40 and could see a significant uptick if it can break out of the $0.46 resistance level. Achieving this milestone could put ADA on track to reach $0.56, a significant gain. Current market sentiment is challenging, but Cardano’s strong technical and community support lays a solid foundation for future growth. Investors should keep a close eye as ADA has the potential to regain stability and surge higher in the coming months.