July 2025 was a carnival month in the crypto world. Bitcoin surged, breaking through the $120,000 mark; Ethereum led the market with an astonishing increase of over 49%, with its spot ETF attracting over $5 billion in just one month, approaching a total inflow of nearly $10 billion. Market confidence soared, and bullish sentiment reached unprecedented heights, seemingly heralding an unstoppable bull market on the horizon.
However, this upward trend encountered headwinds in early August, as the 'black swan triple blow' caused the market to quickly switch from 'risk-on' mode to a risk-averse state, with CME Bitcoin futures premium turning negative and funds significantly withdrawing from high-risk assets.
1. Negative 'Triple Blow': The trigger for market panic
This market crash was not coincidental but rather resulted from a series of high-level macro events erupting in a very short time. These events collectively fostered investors' 'risk-averse' sentiment.
1. New Tariff Policy: The reignition of the global trade war
On July 31, U.S. President Trump signed an executive order imposing new reciprocal tariffs on imported goods from multiple countries, with rates ranging from 10% to 41%. This policy quickly triggered market concerns about escalating global inflation. Investors generally believe that tariff barriers will drive up commodity prices, potentially forcing the Federal Reserve to maintain a tough stance on interest rate cuts, which is undoubtedly a significant negative for risk assets that rely on loose liquidity.
2. Poor Employment Data and Political Storm
Soon after the tariff policy was announced, the employment data released by the U.S. Department of Labor was far below market expectations. This weak economic signal was enough to make investors uneasy. More dramatically, President Trump expressed extreme dissatisfaction with this data and fired U.S. Labor Department Director Erika McEntarfer just hours after the report was released.
This politically charged move further amplified market panic, casting a heavy layer of uncertainty over the economic outlook.
Traders reacted to the employment report by significantly increasing bets on a rate cut in September: as of the time of writing, CME FedWatch data showed that the probability of the Federal Reserve lowering the target rate to 4.00-4.25% was nearly 83%, up from the previous day's 37.7%.
3. Nuclear Submarine Deployment: Geopolitics
In terms of geopolitical risks, Trump ordered the deployment of two nuclear submarines to the corresponding areas near Russia. This tough military action was a direct response to provocative remarks made by a senior Russian official.
In the shadow of the Russia-Ukraine conflict, this level of geopolitical tension has made global investors uneasy. Seeking safe havens has become a top priority, and cryptocurrencies, being high-volatility assets, have naturally become the target of sell-offs.
2. Liquidation Storm
Under the barrage of negative news, cryptocurrency prices fell sharply, triggering a chain reaction. Bitcoin dropped over 3% in one day, dipping to $113,231; Ethereum and Solana suffered even more severe declines, down 6% and 5% respectively. XRP was not spared either, with a drop exceeding 10%.
The sharp decline in prices quickly triggered a 'domino effect' in the derivatives market. According to CoinGlass, over $940 million in long positions in the crypto market were forcibly liquidated in the past 24 hours, with long liquidations accounting for the vast majority, reaching $860 million.
Crypto concept stocks have been hit harder, with declines even surpassing those of crypto assets themselves. This reveals the market's dual concerns about such companies during risk-averse periods: worries about both the macro economy and their business fundamentals.
Coinbase: After reporting second-quarter earnings that fell short of expectations, its stock price plummeted by 16%. Despite its core trading business performing poorly, the substantial drop in its stock price also reflects collective panic among investors in the face of market uncertainty.
Strategy: As a well-known 'proxy stock' for Bitcoin, its stock price fell by 8.7%, highlighting the market's vulnerability to such highly leveraged assets.
Other crypto companies like Circle and Galaxy Digital have also seen their stock prices hit hard, indicating that any tremor in the crypto market can be magnified through the stock prices of listed companies and transmitted to the traditional financial markets. The yield on 10-year U.S. Treasuries plummeted by 14 basis points to 4.22%, while gold prices rose by 1.5% to $3,400 per ounce, returning to historical highs.
Fourth, is it a 'healthy pullback' or a 'risk warning'?
In the face of market downturns, analysts' opinions have diverged.
Ben Kurland, CEO of the crypto research platform DYOR, holds an optimistic view, defining this decline as a 'healthy and strategically significant cooling-off period.' He noted that after the 'red-hot' July, the market is undergoing a 'planned pause,' with funds flowing from the most speculative and unstable asset classes to safer havens. In his view, this is not a 'crisis,' but a rational response to the lack of new crises.
However, some analysts have expressed caution. They believe that the macro drivers behind this decline are complex and difficult to predict. Some analysts predict that, considering historical patterns and current macro uncertainties, Bitcoin prices may continue to be under pressure in August and September, potentially dropping to $80,000, with a turnaround possibly occurring only in the fourth quarter.
Glassnode analysts predict that if Bitcoin prices fall below $110,000 after a recent surge, it could trigger a sell-off acceleration.
Except for halving years, August is generally one of the more sluggish months in Bitcoin's history. The frenzy of July ultimately needs the calm of August to digest. This violent market fluctuation raises the question: is it a healthy profit-taking phase or a warning of a larger storm? Perhaps only after digesting all the negative news can the market find a new direction amid the volatility.
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