BTC has dropped over 25% in 7 days, and ETH has erased its gains for the year. Is it time to buy the dip?

Author: flowie, ChainCatcher

Editor: Marco, ChainCatcher

The sky is falling! August 5 may become the most panic-inducing Black Monday in history. Global stock markets and the cryptocurrency market have almost all fallen into a crash mode.

In the past 24 hours, BTC dipped to a low of $52,300. Within a week, BTC has dropped over 25% from more than $70,000 on July 29.

Currently, BTC is around $54,600, with a 24h decline of over 10%. ETH once fell to $2,111, now reported at $2,316, with a 24h drop of over 20%, effectively wiping out all gains made this year.

The total market capitalization of cryptocurrencies has also fallen below $2 trillion, currently reported at $1.91 trillion, with a 24h decline of over 11%. Coinglass data shows that in the past 24 hours, the total liquidation across the network reached $788 million, primarily from long positions, with long liquidations amounting to $676 million.

The rapid decline has also led to large-scale liquidations. According to Parsec data, in the past 24 hours, the liquidation volume in DeFi lending exceeded $320 million, setting a new high for the year. Among them, the liquidation volume of ETH collateral reached $187 million, wstETH reached $77.9 million, and wBTC reached $32.5 million.

Compared to the previous market panic triggered by the German government's sell-off and the massive compensation from Mt. Gox, this time the global market's risk-averse sentiment is more panicked and helpless, showing a more pessimistic outlook for future corrections.

According to the latest data from alternative, today's Fear and Greed Index (FGI) is in a state of panic, dropping from 34 points yesterday to 26 points.

BTC Drops Over 25% in 7 Days, What Are the Factors?

Based on expectations of interest rate cuts in September, BTC's price briefly surpassed $70,000 last week.

However, within just a few days, the unexpected interest rate hike by the Bank of Japan, weak economic data from the U.S., and escalating tensions in the Middle East have pushed global market risk-averse sentiment to its peak.

On July 31, the Bank of Japan announced a 15 basis point interest rate hike, ending years of negative interest rates. When the yen begins to appreciate, it means that the cost for capital and investors borrowing in yen increases, forcing them to sell off some high-risk assets, including U.S. stocks and Bitcoin, to reduce yen-denominated debt.

From August 1 to 2, the U.S. released several economic data points, raising market concerns about a recession in the U.S.

The ISM manufacturing data for July, reflecting U.S. factory activity, was only 46.8%, below previous market expectations. Meanwhile, the U.S. unemployment rate rose to 4.3%, reaching its highest level since 2021.

Additionally, the escalating geopolitical tensions in the Middle East have also triggered risk-averse sentiment among investors.

U.S. stocks have seen significant pullbacks for several consecutive days. On August 1, the Dow Jones Industrial Average fell more than 700 points at one point, the S&P 500 index dropped 1.37% throughout the day, and the Nasdaq Composite Index slid 2.3%, with the Russell 2000 index, which covers more small and medium-sized enterprises, plummeting over 3%.

On August 2, the three major U.S. stock indices continued to decline collectively. The Dow fell more than 2.4%, the S&P 500 index saw intraday losses exceeding 2.6%, and the Nasdaq's decline exceeded 3.4% at one point. Most of the seven giants of U.S. stocks (including Apple, Microsoft, Google, Amazon, Nvidia, Meta, and Tesla) also fell, with Amazon, Tesla, Microsoft, and Google experiencing four consecutive weeks of declines.

The pullback in U.S. stocks further transmitted risk-averse sentiment to the cryptocurrency sector. On August 2, the U.S. spot Bitcoin ETF experienced the largest capital outflow in about three months. Today, BTC briefly fell below $53,000, with a 24h decline of over 10%.

The sell-off by some crypto institutions may also have contributed to the sharp decline in cryptocurrencies like Bitcoin and Ethereum.

BitMEX co-founder Arthur Hayes stated on social media that he learned through traditional financial channels that a "big player" has collapsed and sold all crypto assets. The community largely speculates that this refers to Jump Crypto.

According to an analysis released by EmberCN yesterday, Jump Trading may be selling ETH and is currently redeeming a batch of $410 million worth of wstETH (120,000 units) into ETH and transferring it to exchanges like Binance/OKX.

As of yesterday, Jump Trading has redeemed 83,000 wstETH into 97,500 ETH over the past nine days since July 25. Among them, 66,000 ETH (approximately $191 million) has already entered trading platforms.

Future Market Direction Full of Uncertainty

The recent sharp decline in the crypto market is not just an internal adjustment but is influenced by the global financial environment, which is more uncertain, leading many investors to express that they dare not buy the dip amid such a significant drop.

On August 3, crypto research firm 10x Research stated that the recent drop in Bitcoin prices may just be the beginning of a larger decline, as the weak ISM data has impacted risk assets.

If the stock market follows the downward trend of the ISM index and even begins to anticipate an impending recession, the stock market could see significant declines in the coming quarters, which would also have a major negative impact on Bitcoin. If this occurs, Bitcoin's price could return to the $50,000 level or even decline further.

Today, 10x Research continued to be bearish on Bitcoin and Ethereum, stating, "We expect the support line at $55,000 to break, potentially pushing the price down to $42,000. In this scenario, Ethereum could fall below $2,000."

Crypto macro analyst @Phyrex_Ni stated that he does not see any positive factors that could trigger Bitcoin to rebound to $70,000 in the short term.

After the massive compensation from Mt. Gox and the German government's sell-off triggered market panic, there was quickly a positive expectation for Bitcoin supported by a speech from Trump. However, this time there is no clear positive support for a rebound.

@Phyrex_Ni also mentioned that whether the crypto market continues to remain sluggish or restarts a bull market rhythm is likely unrelated to crypto itself, but rather depends on a global macroeconomic recovery. Therefore, the future market direction faces greater uncertainty.

Although the market is generally pessimistic about this sharp decline, for some crypto believers, the crypto market, having experienced multiple black swan events, continues to move forward.

Jeremy Allaire, co-founder and CEO of Circle, stated, "I remain bullish on the crypto industry, just as I was six weeks ago, focusing on technology, industry, and adoption. When facing global macro fluctuations, do not focus on the prices of digital goods unless you are just here to trade."