At the time of writing, the Bitcoin price is down 17.2%, while the Ethereum price is down 22.8%. Looking back a week, a further 10% approximate drop can be added to both of the major cryptocurrencies. The VIX index, the so-called fear index which is based on the extent to which investors are willing to hedge against price falls through options, has simultaneously shot up to its highest level since March 2020. The broad Nikkei 225 index in Tokyo ended the morning hours down 12.4% for the day - its biggest drop since 1987.
NBX remains the leading crypto service provider in the Nordics.
On Friday, non-farm payrolls were published, which shows the number of new jobs created outside agriculture in the US in July. The report showed that approximately 114,000 new jobs were created in the US, significantly lower than Bloomberg's consensus estimate of approx. 175,000 new jobs. The average over the past 12 months for the number of new jobs has been about 215,000, so Friday's figure was well below average. This indicates that the labor market in the US is cooling, as the unemployment rate simultaneously increased to 4.3%, where the estimates in advance were that the unemployment rate would remain unchanged from June, where it landed at 4.1%. In other words, there is a growing fear that the US economy is in a real recession.
A month ago we saw the US inflation numbers show a decline for the first time since May 2020. When inflation falls, so does market growth. In a post from last year, I quoted Karl Johan Molnes as saying the following regarding the fear of recession: "Inflation will plunge, growth will plunge, and then the markets plunge. Interest rate cuts and stimulus will happen after the stock market is down a good chunk, and then you will lie curled up in bed only to wonder what happened."
In other words, there is a lot of turmoil in the market at the moment. Last week, Japan's central bank raised interest rates for the second time in 17 years, and over the weekend it emerged that financial mogul Warren Buffett increased his Berkshire Hathaway cash holdings to a record $276.9 billion. Throughout Berkshire Hathaway's history, Buffett has often increased his cash holdings before an economic downturn.
The good news, if any, is that the dramatic fall in the cryptocurrency market can largely be linked to macroeconomic events and not specific events within the crypto-sphere, which we often experienced during 2022. This will feel like scant comfort to many, but one could argue that it is surprising that the crypto market has not fallen more. A cooling economy also bodes well for an increasing amount of rate cuts which again suits Bitcoin and cryptocurrencies well. The arrows are currently pointing towards a gloomy opening for the US stock market later today, but far from as bad as the outcome in Japan. The technology-heavy Nasdaq is likely to fall more than the S&P 500 and Dow Jones.
This text is intended to inform and is not an investment recommendation.
Best regards,
Adam Jakobsen.
NBX.
