The cryptocurrency market downturn that began on Saturday, August 3, continued into Monday, August 5. At the time of writing, Bitcoin’s price stands at $52,475, having dropped more than 24% in a day, according to CoinGecko. Ethereum lost 20% over the same period, trading at $2310.
ForkLog consulted experts to discuss the reasons behind the slump and the conditions under which major cryptocurrencies might recover.
Threat of World War III and US Recession
The significant correction has affected not only cryptocurrencies but also the stock market. It occurs amid fears of a US recession and a potential military conflict in the Middle East.
Regarding the first reason, Tatiana Maksimenko, founder of New Level Agency, highlights several points. The US Department of Labor released data on unemployment benefit claims, which have risen to their highest level since August 2023. Meanwhile, the industrial activity index fell to 46.8 points, the lowest level in eight months. The US Federal Reserve chose not to change the key interest rate at its last meeting.
“Market participants fear that the regulator made the wrong decision, and given the unemployment and business activity data, the US economy is heading towards a recession. Additionally, the hype around AI has exacerbated the decline in high-tech sector stocks. This has dragged down the cryptocurrency market, which historically correlates with the state of the IT company stock market,” explained Maksimenko.
In her view, the situation in the US economy is a direct cause of the current decline in Asian markets on the morning of Monday, August 5. In the coming hours, the expert predicts the continuation of the bearish trend, possibly spreading to European markets, followed by a “ricochet back to the American stock market.”
“After such deep declines, a rebound always follows. How high the crypto market can bounce back is hard to say, but Bitcoin has every chance to return to $58,000 in the coming week,” noted Maksimenko.
Binance CEO Richard Teng also considers macroeconomic factors the most influential at the moment.
“The overall market sell-off has led to a capital shift from high-risk assets, which still include digital currencies. This movement was amplified by recent changes in the US presidential race, which some market participants view as less favorable for cryptocurrencies as an asset class,” he stated.
Teng did not rule out that seasonal dynamics also played a role—summer months have historically brought lower returns in the crypto market.
Overall, the exchange head does not see the current challenges as a sign of a long-term negative trend. The expected interest rate cut in September, if approved, will improve the prospects for the US economy.
“With the presidential elections still ahead, there remains significant potential for market fluctuations. As the elections approach, we are likely to witness market impacts in both directions as candidates clarify their positions on cryptocurrencies,” concluded Teng.
Blum co-founder Gleb Kostarev reminded that the digital asset segment typically reacts sharply to potential risks and geopolitical tensions in particular.
“In recent years, we have seen this more than once. For example, a similar drop occurred in April when Iran attacked Israel. If escalation does not occur, we may see the market recover quite quickly,” he stated.
In the short term, Kostarev advises waiting for the US market to open before making purchases, as US investors may start exiting their Bitcoin ETFs amid panic.
Israel-based trader Vladimir Cohen pointed out that political rhetoric does not equate to actual events. He sees the global cause in investors worldwide reassessing risks due to the high likelihood of a US recession: massive stock market sell-offs on Friday, August 2, and a record 20-year drop in the Nikkei index.
“The latter is more related to carry trade: purchasing US Treasury bonds with dollars bought for yen, allowing for several rounds of leverage. The Bank of Japan raised rates, expecting a cut from the US Federal Reserve, which led to yen strengthening, dollar weakening, and consequently, massive liquidations in the Japanese market,” the trader stated.
Actual Liquidation Volume Exceeds $1 Billion
According to Cohen, every Bitcoin price rebound after a drop from $65,000 was accompanied by a large accumulation of long positions.
“Each dip saw some stabilization, during which long positions were accumulated, then another sharp dump and liquidation of longs again. Thus, more than $1 billion has already been liquidated on Chinese exchanges alone,” he noted.
This figure does not include the situation on DEX, Coinbase, and Korean exchanges, so the actual liquidation volume is much higher.
The drop below $56,000 triggered panic selling, especially in altcoins. Cohen explained this by the activation of sales from clients receiving payouts from Mt.Gox and Genesis Trading. The trader also pointed to market manipulations, particularly the withdrawal of 120,000 ETH by market maker Jump Crypto and several other large Bitcoin transfers to exchanges.
Where Will Bitcoin and Ethereum Prices Move?
The cryptocurrency market situation directly depends on the dynamics of the US stock markets. A significant decline there will lead to large withdrawals from Bitcoin and Ethereum ETFs, triggering further sell-offs, Cohen believes.
“Good support is at $2000 for Ethereum and $45,000 for Bitcoin. I expect high demand there. We are likely to see a technical rebound now, and if there is some recovery in the US stock market, Bitcoin’s price may return to $54,000-55,000 by the end of the US trading session,” the expert predicts.
TYMIO startup founder Georgy Verbitsky believes that the main potential for decline has already been realized, but it is too early to expect a return above $60,000, as bears dominate the market.
“I anticipate a rebound to $56,000-58,000 and some time trading in the $54,000-58,000 range. In case of negative news from Israel, Iran, or Lebanon, the decline will continue to at least $49,000-48,000. Speculatively, one can buy expecting a rebound, but I would not increase long-term positions until we return above $60,000,” Verbitsky concluded.
Previously, Donald Trump saw Bitcoin as a solution to the US national debt problem.