Bitcoin surged to $70,040 on July 29th with optimism about Trump Trade, where an increase in Donald Trump's odds of winning the US 2024 Election, favoring crypto policy he promised. However, the promises remain empty until he won the November voting, especially Kamala Harris takeover Biden to become the new Democratic presidential candidate. 

 

One week after the hopium sentiment, ISM manufacturing PMI fell to 46.6 in July, firmly below market expectations of 48.8, reflecting the sharpest contraction in US factory activity since November 2023. Later in the week, non-farm payrolls increased 114K in July, well below forecasts of 175K and a downwardly revised from 206K to 179K in June. The panic ignition hit, when July unemployment rate came in at 4.3%, the highest since October 2021. Citi and JPMorgan subsequently expect Fed to cut 50bps in September and totalling 125bps cut in 2024. The market expects 94.7% probabilities Fed to cut 100bps and 64% probabilities to cut 125bps in 2024 according to CME FedWatch. 

 

 

 

 

The fear resulted from the latest unemployment rate technically meets the 'Sahm rule' criteria, where the three-month average is 50bps more than the lowest point over the prior twelve months. Google Trends shows 'Sahm rule' hit the historical high in the number of web search and VIX also hit the highest point since March 2023, when several Silicon Valley Bank collapsed. However, Sahm rule is empirical regularity and hard to justify its relevancy when we are experiencing extraordinary labour force participation rate recovering from Covid19. Despite that, the market is still worried the Fed is already behind the curve on rate cuts, which potentially leads to economic recession or a blackswan event, especially in the time when commercial chapter 11 filings increased 70% in June 2024 from June 2023. 

 

Bitcoin and Ethereum experienced massive sold-off, both ETFs had an outflow of $237.4 million and $54.3 million respectively last Friday. Ethereum price once plummeted to $2,059 and triggered $140 million liquidation within 1 hour on Monday morning, causing the network gas fees to surge over 660gwei and liquidated $304 million in the past 24 hours. $247 million worth of Bitcoin was liquidated during the same period. Negative sentiment from macro data, lack of catalyst in August and potential cascading selling pressure from Mt. Gox and Genesis further holding the Bitcoin price hostage. 

 

During a high uncertainty macro environment such as at the beginning of the pandemic, investors tend to sell off interest rate sensitive risk on assets such as Bitcoin and other cryptocurrencies. However, this often provides the opportunity for investors to reposition themselves for the rate cuts cycle as the unfavourable labour market potentially increases the pace of Fed's decision on rate cuts. Interest rate sensitive risk on assets have historically showed quick rebound during a low-interest rate environment.