The Federal Reserve "puts out fires," cryptocurrency rebounds, can we buy the dip?

Author: Mia, ChainCatcher

Editor: Marco, ChainCatcher

After the bloody Monday, global markets welcomed a brief respite today.

Asian stock markets opened strong on Tuesday, with the Nikkei index leading the gains and the TOPIX index also rising significantly. Japan's benchmark Nikkei 225 index rose over 8%, recovering some of the ground lost after a 12% drop on Monday; the Australian stock market remained largely flat; U.S. stock index futures also rose, with Nasdaq 100 futures expanding their gains to 2%.

Meanwhile, the cryptocurrency market also showed signs of a rebound, with the total global crypto market cap rising above $2 trillion in the past 24 hours, and BTC price returning to $55,000.

Although investors remain concerned about the slowing U.S. economy and geopolitical risks, they are actively seeking buying opportunities on dips.

Federal Reserve Officials Urgently Respond

On Monday, global markets experienced a hellish drop, plunging investors into panic. Chicago Fed President Charles Evans and San Francisco Fed President Mary Daly stepped in to "put out the fire," attempting to soothe investor sentiment.

Evans emphasized that the July non-farm payroll report is just "one data point," and although the employment data was weaker than expected, it does not indicate that the economy is in recession. Daly also pointed out that the U.S. job market remains robust, and they will wait for more data to decide whether to take action. She also revealed that the FOMC will be open to the idea of rate cuts at the next meeting.

Currently, traders in the market generally believe that the likelihood of the Fed cutting rates by 50 basis points at the next policy meeting in September is 74%, while the chance of a 25 basis point cut is 27%. According to CME's FedWatch tool, earlier on Monday, the expectation of a 50 basis point cut was fully priced in by the market, and during the panic, a 75 basis point cut was also considered possible.

Analysts have provided different explanations for this market rebound.

Some analysts believe that this is because investors are gradually calming down from the panic over an impending recession in the U.S. economy, thus adjusting their investment strategies towards Asian markets. On Monday, the ISM Services PMI index for July released by the U.S. Supply Management Association rebounded to 51.4, in line with market expectations, further alleviating market concerns.

On the other hand, the rebound in the Japanese stock market on Tuesday may also be related to the gradual easing of the arbitrage trading wave. Chris Weston, research director at brokerage firm Pepperstone, predicted before the Japanese stock market opened that the shocking historic moves seen in the Asian markets on Monday were primarily due to massive liquidations of margin positions. Therefore, he expected a strong rebound in the market after the opening on Tuesday. However, he also warned that after such intense leverage adjustments, major Japanese banks have suffered heavy losses, and now only the bravest may dare to enter the market.

Cryptocurrency Broadly Rebounds

The total global crypto market cap has risen to $2.06 trillion, with BTC breaking above $56,000, and the 24-hour decline narrowing to 0.24%. Established altcoins like SOL and BNB also saw a broad rally, with gains of around 8% within 24 hours. Currently, BNB has rebounded to $480, with a 24-hour increase of 9.5%; Sol has rebounded above $140, with a 24-hour increase close to 15%.

In this regard, Alex Thorn, head of research at Galaxy, remains confident in the bull market, stating, "Although this drop seems severe, its magnitude is comparable to declines during previous bull markets."

Matt Hougan, CEO of Bitwise, also compared this weekend's crash to the one in March 2020 in an article, believing that yesterday's sell-off was a buying opportunity.

On the other hand, this rebound is also closely related to the counter-trend trading strategies of whales, with some large holders buying on dips during this downturn, and their actions often foreshadow future trends.

Currently, the amount of Bitcoin withdrawn from exchanges by whales has reached a nine-year high, with large holders increasing their holdings by 84,000 BTC just in July.

According to @ai_9684xtpa, a whale that built a position of 58,400 ETH at an average price of $2,265 since May 2023 has once again stepped in to buy on dips, withdrawing 6,000 ETH from Binance nine hours ago during the crash, worth $13.82 million, with a cost of about $2,304.

Additionally, a suspected address of Sun Yuchen also withdrew 14,884 ETH from Binance today, worth approximately $34.7 million, and Sun Yuchen currently holds over 700,000 ETH.

Currently, ETH has rebounded above $2,400, briefly touching $2,500, with a 24-hour decline narrowing to 6.77%.

Compared to established altcoins, some newer narrative altcoins have seen weaker rebounds, and investors are mostly taking a wait-and-see approach.

Data shows that the price of TON fell by 17% last month, and according to Santiment, the number of whales holding large amounts of TON tokens has increased by 2% in the past month. However, the current rebound of TON is weak, with a 24-hour increase of 3.3%.

Where is the Market Heading?

Despite the market rebound, investors still need to remain cautious.

The current situation may provide a good long-term entry opportunity, but in the short term, the rebound in global markets may still face certain uncertainties.

Markus Thielen, founder of 10x Research, stated that if the current economic weakness further deteriorates into a recession, Bitcoin's price could drop to $42,000.

Furthermore, although both Asian stock markets and the cryptocurrency market have seen increases, market sentiment remains relatively fragile.

Business analyst Jill Schlesinger pointed out that most stock market indices reached new highs in mid-July, and since then, there have been concerns that the stock market bubble may burst.

However, in the long run, the direction of global markets will depend more on fundamental factors. U.S. institutional investors remain optimistic about the development of BTC and ETH, and the counter-trend trading strategies of whales may also indicate a future upward trend.

Some analysts noted that the market has not shown signs of economic recession, and the yen's interest rate hike has not directly impacted the U.S. market, nor will it have a significant effect on cryptocurrencies. The market is heavily influenced by trading sentiment, but U.S. stocks have already begun to rebound.

Daniel Cheung, co-founder of Syncracy Capital, also expressed optimism, stating, "Cryptocurrencies are expected to recover relatively quickly, as most of the current sell-offs are forced and entirely driven by panic. Ironically, the entrance to a larger bull market has already opened."

Additionally, analysts noted that BTC and ETH in the CME are maintaining a positive premium, and even though the premium is relatively large, it has not impacted spot prices, which may indicate limited interest from hedge funds or a lack of significant hedging activity. The positive premium in the CME suggests that U.S. institutional investors remain optimistic about the development of BTC and ETH, and although the CME is an arbitrage tool, widening price differences do not necessarily lead to liquidation. In the long run, the focus of the market is still on investors' expectations for the future.