Bitcoin plummeted on August 5: Should we be bullish or bearish moving forward?
On August 5, 2024, the Bitcoin market experienced another significant price fluctuation. Within a single day, the price of Bitcoin plummeted, triggering widespread market attention and discussion. This drop not only caught investors off guard but also prompted market analysts to delve into the reasons behind it and the potential future trends. In this article, we will interpret the three major bearish warning signals behind this Bitcoin crash, while also exploring three bullish signals, aiming to provide investors with a more comprehensive perspective.
Three Major Bearish Warning Signals
Shift in Market Sentiment
Market sentiment plays a crucial role in cryptocurrency investment. Before the Bitcoin crash, there was an overwhelming sense of optimism in the market. Many investors and analysts were anticipating that Bitcoin would continue to break historical highs. However, a rapid shift in market sentiment often leads to significant price volatility. Negative news on social media, pessimistic reports from mainstream media, and warnings from some well-known investors can quickly alter market sentiment, leading to panic selling.
In early August, some influential cryptocurrency commentators on the social media platform Twitter (now X), such as @CryptoWhale and @TheMoon, sparked extensive retweets and discussions after publishing several analyses suggesting a potential bubble in the Bitcoin market. Meanwhile, The Wall Street Journal and the Financial Times also published articles questioning Bitcoin's high valuation. These statements and reports spread rapidly, triggering panic among investors and resulting in large-scale selling in the market.
Technical Indicators Issue Warnings
Technical analysis is a commonly used method in the cryptocurrency market, predicting market trends by analyzing price charts and various technical indicators. Before the Bitcoin crash, some key technical indicators had already issued warning signals. For instance, the Relative Strength Index (RSI) indicated that Bitcoin had entered the overbought territory, suggesting a potential market correction. Additionally, the crossover of moving averages also hinted that prices might decline.
In early August, a "death cross" formed on Bitcoin's daily chart—where the 50-day moving average crossed below the 200-day moving average, which is a typical bearish signal. Furthermore, the RSI had already exceeded 70 a week before the crash, entering the overbought territory. These technical indicators suggested that the market was overheated and that a price correction was likely. On August 5, these technical signals were validated by the market, and Bitcoin's price quickly fell.
Changes in the Macroeconomic Environment
Changes in the macroeconomic environment have also had a significant impact on the Bitcoin market. Recently, the uncertainty in the global economic situation has increased, and the Federal Reserve's monetary policy has become more restrictive, putting pressure on high-risk assets like Bitcoin. Particularly, the Fed's interest rate hikes have led to a shift of funds from high-risk assets to safer investment options, triggering a wave of Bitcoin sell-offs.
At the end of July, the Federal Reserve announced another 25 basis point rate hike and indicated that further hikes might follow. This news raised concerns about high-risk assets in the market, leading to a sell-off in the cryptocurrency market, including Bitcoin. At the same time, the European Central Bank also stated that it would maintain a tight monetary policy to address inflationary pressures. These changes in the macroeconomic environment further exacerbated market uncertainty, causing investors to withdraw from high-risk assets and turn to safer havens like gold and U.S. Treasury bonds.
Six Major Bullish Signals
Increased Long-Term Demand
Despite the severe fluctuations in Bitcoin's short-term price, the long-term demand for Bitcoin remains strong. Particularly in some economically unstable regions, the demand for Bitcoin as a store of value is continuously increasing. Moreover, an increasing number of institutional investors are beginning to include Bitcoin in their asset allocations, which also supports Bitcoin's long-term growth.
In some Latin American countries, such as Argentina and Venezuela, due to extreme instability of local currencies and high inflation rates, the demand for Bitcoin has significantly increased. Data shows that Bitcoin trading volume in Argentina has grown by nearly 200% over the past year. Additionally, globally recognized investment firms, such as Fidelity Investments and BlackRock, have also started to include Bitcoin in their portfolios, further driving market demand for Bitcoin.
Advancement of Technological Development
The continuous development of Bitcoin and its underlying technology, blockchain, is also an important bullish signal. Technological upgrades to the Bitcoin network, such as the proliferation of the Lightning Network, have greatly improved the speed and efficiency of Bitcoin transactions. Furthermore, innovations like decentralized finance (DeFi) and smart contracts have brought new application scenarios and growth opportunities for Bitcoin and the entire cryptocurrency market.
Improvement in Policy Environment
The improvement in the policy environment is another important bullish signal for Bitcoin's future. Although countries around the world currently have varying regulatory attitudes towards cryptocurrencies, the overall trend is moving towards clearer and more favorable directions. An increasing number of countries are beginning to recognize Bitcoin's legal status and are establishing corresponding regulatory frameworks to promote its healthy development. In early 2024, the U.S. Securities and Exchange Commission (SEC) approved a Bitcoin ETF (exchange-traded fund), marking an important milestone in the development of the Bitcoin market. The launch of the Bitcoin ETF will provide more traditional investors with access to the Bitcoin market, increasing market liquidity and stability.
Additionally, Germany recently passed a bill allowing institutional investors to hold up to 20% of their assets in cryptocurrencies. Japan has further regulated the operations of cryptocurrency exchanges to ensure market transparency and security. These improvements in the policy environment help enhance market confidence in Bitcoin, driving its long-term price increase. The positive adoption of cryptocurrency regulation is continuously growing. Key evidence includes the increasing likelihood of supportive U.S. governance for cryptocurrencies. Several notable developments include: the increase in Bitcoin holdings by U.S. companies, support for cryptocurrencies from both Democratic and Republican parties, and the fair accounting rules for Bitcoin set to take effect in 2025. Although there may be some obstacles in the short term, the overall trend remains positive and strong.
Impact of the Gold Market
Fluctuations in the gold market often have significant effects on the Bitcoin market. Gold, as a safe-haven asset, tends to perform better than other risk assets in risk-averse markets. Currently, due to geopolitical conflicts, uncertain U.S. elections, and yen carry trades, macro uncertainty is high. While Bitcoin may follow gold, high-risk altcoins may not. In 2019, when gold broke through again, Bitcoin also reached a peak. This pattern reappeared in March 2024, demonstrating the correlation between gold and Bitcoin. Although the market may cool in the short term, the long-term upward trend of gold supports Bitcoin.
Influx of Stablecoins
Despite the plummeting prices of cryptocurrencies, the supply of stablecoins is approaching historical highs (ATH). This year, the supply of stablecoins has grown by over 25%. As capital continues to flow into the crypto market, the long-term bearish outlook is difficult to sustain. The increase in stablecoin supply indicates that more liquidity is entering the crypto market.
Stablecoins are capital that can be invested in crypto assets. Historically, an increase in supply has often signaled a rise in cryptocurrency prices. Although interest rate cuts may negatively impact high-risk assets in the short term, the long-term outlook for stablecoins remains bullish. As yields on traditional assets decline, on-chain yields become more attractive. This may promote the expansion of stablecoins in the coming months.
Record Global Debt
Global debt reached a historic high of $315 trillion earlier this year. With over 50 countries holding elections in 2024, governments may lean towards tax cuts and cash stimulus policies. According to the four-year liquidity cycle regarding "debt issues," since 2008, this cycle has been based on government refinancing debt. We are currently in a "macro summer," with expected gradual increases in yields. This phase typically leads to a "risk-on" macro autumn.
Conclusion
The Bitcoin crash on August 5 reflects the market's high volatility and complexity. In interpreting this event, we must recognize both the bearish warning signals that led to the crash and the bullish signals supporting Bitcoin's long-term development. The shift in market sentiment, warnings from technical indicators, and changes in the macroeconomic environment are the main reasons for this crash, while the increase in long-term demand, advancement of technological development, and improvement in the policy environment provide strong support for Bitcoin's future development.
For investors, it is essential to remain calm and rational when facing the volatility of the Bitcoin market. Although short-term price fluctuations can be severe, Bitcoin still possesses enormous potential and room for growth in the long term. By deeply analyzing market dynamics and grasping both bearish and bullish signals, investors can better formulate investment strategies to achieve stable asset appreciation.
In summary, the market outlook for Bitcoin remains full of uncertainties, but as long as we can accurately identify and respond to various signals, there is a possibility of standing firm in this challenging and opportunity-filled market.
