Crypto Market Rebounds, but Recession Fears Linger: Bitcoin Holds Above $60,000
New York, NY – After a wild week of trading, major cryptocurrencies ended the week in the green, with Bitcoin climbing above $60,000. However, the market continues to grapple with concerns over a potential global recession, following a sharp sell-off earlier in the week attributed to the unwinding of the Yen carry trade.
Bitcoin, which briefly dipped below $50,000 on Monday, made a comeback this week, fueled by positive news on the US labor market. Ethereum also saw a significant rebound, jumping nearly 2% to over $2,500. However, Solana, which fell nearly 6% since yesterday, is still recovering from the sell-off.
“The big culprit, of course, was the so-called Japanese carry trade," explained Ben McMillan, Chief Investment Officer of IDX Digital Assets, referencing the recent increase in Japan’s benchmark interest rate. “Markets were starting to unwind because a lot of people over the years have been borrowing in Yen because the cost of carries very low and they’ve been buying risk assets abroad, including places like the United States.”
McMillan elaborated on the role of the carry trade unwinding in the crypto market sell-off: "Crypto markets, of course, are no stranger to excess liquidity," he said, adding that large liquidations over the weekend contributed to the sharp drop in Bitcoin’s price below $50,000.
Though Bitcoin has rebounded, recession worries persist, especially in light of the weaker-than-expected July jobs report. “There’s still macro weakness,” McMillan acknowledged. “We’ve seen a big bounce back in Risk assets, but a lot of that is also liquidation on the short side.”
Despite the recent volatility, McMillan remains optimistic about Bitcoin’s long-term prospects. “It’s certainly achievable,” he said regarding Bitcoin reaching record highs again. “The big question is, what would it take?”
McMillan highlighted several factors that could influence Bitcoin’s price trajectory: the threat of a recession, ongoing political developments, and the increasing adoption of Bitcoin as a mainstream asset. The recent launch of spot Bitcoin ETFs, which has made investing in Bitcoin more accessible to a wider range of investors, could also play a significant role in Bitcoin’s future price movements.
Regarding the impact of the spot Bitcoin ETFs on the recent selloff, McMillan noted that the newly-launched ETFs have contributed to increased volatility as more investors, some of whom are less accustomed to crypto’s fluctuations, enter the market. "The great irony in all of this," he said, "is that we’ve been asked for years going back to 2019 if we thought volatility would subside in this asset class as investors started moving in, particularly institutional investors. And we said no, we thought it could actually be the opposite."
Meanwhile, Ben Lenthal, co-founder of the restaurant loyalty platform Resi, unveiled Blackbird Pay, a new web3 system that allows participating restaurants to accept crypto payments. Lenthal emphasized the system’s potential to restore the relationship between restaurants and guests and improve the economics for restaurants, which often face hefty processing fees for credit card transactions.
"We think there’s been an erosion of this relationship between guests and restaurants," Lenthal shared. "There’s lots of technology and lots of apps that have inserted themselves in the relationship, and the intimacy that used to define relationships between guests and restaurants, the sort of the intimate magic that happens when you become a regular or you find a restaurant you love and you connect with somebody there, it’s largely gone away.”
Blackbird Pay leverages the Base blockchain, a platform developed in partnership with Coinbase. Lenthal highlighted the speed, robustness, and cost-efficiency of the network as key advantages.
With a growing network of over 1,000 restaurants by the end of the year, primarily in New York and San Francisco, Blackbird Pay is poised to disrupt the traditional restaurant payment landscape, showcasing the potential of web3 technologies to revolutionize industries beyond cryptocurrency.
Crypto Markets Experience Wild Ride This Week: Bitcoin Briefly Drops Below $50,000, Then Rebounds Above $60,000
Cryptocurrencies experienced a volatile week of trading, with Bitcoin briefly dropping below $50,000 on Monday, its lowest point in six months. This steep selloff was attributed to a combination of factors, including heightened recession fears, escalating tensions in the Middle East, and the unwinding of the Yen carry trade. However, major cryptocurrencies rebounded in the latter half of the week, with Bitcoin climbing back above $60,000. This surge coincided with a rally on Wall Street, fueled by stronger-than-expected US labor market data.
Key Takeaways
- Bitcoin and other major cryptocurrencies experienced a significant sell-off early in the week, driven by recession worries and the unwinding of the Yen carry trade.
- Bitcoin briefly fell below $50,000 on Monday but rebounded to trade above $60,000 by the end of the week.
- The rebound in crypto prices was linked to a surge on Wall Street following stronger-than-expected US labor market data.
- Experts attribute the volatility to the increasing number of investors entering the crypto market through newly launched spot crypto ETFs.
- The rise of web3 projects like Blackbird Labs, which allows diners to pay for meals in crypto, is gaining traction in the restaurant industry and may usher in new possibilities for payments and customer loyalty.
The Unwinding of the Yen Carry Trade
Ben McMillan, Chief Investment Officer of IDX Digital Assets, sheds light on the role of the Yen carry trade in this week’s crypto market turmoil. He explains that the carry trade, a strategy where investors borrow money in a low-interest-rate currency like the Japanese Yen and invest in higher-yielding assets, was a major contributor to the sell-off.
"When Japan increased their rates last week, their benchmark rate… markets were starting to unwind because a lot of people over the years have been borrowing in Yen because the cost of carries very low, and they’ve been buying risk assets abroad," said McMillan. "It doesn’t take a lot of increase in that cost of financing those positions to basically force an unwind."
Recession Fears, Liquidations, and the 200-Day Moving Average
McMillan also highlights the role of recession fears, which intensified following the release of weaker-than-expected July jobs data. He points out that the market’s initial concerns over unemployment have eased somewhat, as the recent job numbers have been slightly stronger than anticipated.
Additionally, he emphasizes the impact of liquidations on the short side of the market: "A lot of that was predicated on, you know, not just the carry trade unwinding, but renewed concerns about a global recession. We’ve seen a big bounce back in risk assets, crypto in particular… even yesterday, we’ve seen, I think in the last 24 hours, roughly $100 million of liquidated shorts."
McMillan also points out that Bitcoin’s price is currently hovering around its 200-day moving average, a critical technical benchmark for many risk assets. "It’s trading right around that level, six, you know, 60 to 62,000… if investors want to see sustained upside, I think Bitcoin’s got to break through that," he warns.
Bitcoin’s Outlook: All-Time Highs Possible, but Macroeconomic Concerns Remain
While Bitcoin’s price is up 43% since the beginning of the year, the recent price drop has chipped away at its earlier gains. McMillan believes that reaching all-time highs, surpassing the $73,000 mark achieved in March, is "certainly achievable," but emphasizes the need to watch several key factors:
"The big question is exactly what you said, what would it take?" he says. "The first, of course, is whether or not we do fall into a recession. If you look historically, it’s not necessarily when the yield curve inverts that kicks off the recession clock, it’s when it starts to deinvert that the recession is near. And that’s where we are right now."
He also highlights concerns about the US consumer’s financial leverage, particularly in light of rising default rates on credit cards, auto loans, and even mortgages.
However, McMillan offers a glimmer of optimism, noting the increasing adoption of Bitcoin among institutional investors. "The launch of BlackRock or Fidelity getting into the game… that’s good from a crypto adoption perspective," he says. "A lot of people who wouldn’t have seriously considered it in the past are now starting to look at it in the context of broader portfolio asset allocation decisions."
Spot Crypto ETFs and the Growing Impact of Institutional Investors
The influx of institutional investors has been fueled, in part, by the launch of spot crypto ETFs, which allow investors to gain exposure to Bitcoin without having to buy it directly on cryptocurrency exchanges. Bernstein analysts note that, unlike previous cycles, these ETFs are now "highly liquid," with daily trading volume around $2 billion.
McMillan acknowledges that the rise of these ETFs has led to greater volatility: "The joke on… online, is anybody that’s been in crypto as a holder for any kind of length of time, you know, these this type of volatility is just, you know, matter of course," he says. "But now of course, we’ve had, as I said, more of Main Street starting to get into crypto with these spot ETFs, and this is a lot of volatility… more than a lot of them are used to."
McMillan believes that the on-ramp for institutional investors provided by ETFs will be supportive for Bitcoin prices in the long term, but the path forward will likely be bumpy.
Blackbird Labs: A Web3 Approach to Restaurant Loyalty and Payments
While Bitcoin navigates its own wave of volatility, the web3 ecosystem continues to develop new applications, including Blackbird Labs, a restaurant loyalty platform that allows diners to pay for meals using crypto. Ben Lenthal, co-founder of Blackbird Labs, envisions a future where the relationship between diners and restaurants is restored through direct connections.
"We think there’s been an erosion of this relationship between guests and restaurants," said Lenthal. "There’s lots of technology and lots of apps that have inserted themselves in the relationship… We think there’s a real opportunity to restore it, to essentially restore the magic of restaurants."
Blackbird Labs aims to accomplish this, in part, by offering restaurants lower processing fees: "The most direct thing in terms of economics is processing," says Lenthal. "Today, processing in restaurants is very expensive… we think that’s extremely expensive for a transaction… we’re moving money from consumers to restaurants at extremely low cost."
While the company currently processes some transactions on the blockchain, the majority are still handled through traditional payment systems. However, Lenthal anticipates that the platform will enable a fully decentralized, blockchain-based payment system in the future.
The Future: Crypto’s Volatility and the Growing Power of Web3
This week’s volatility in the crypto market highlights the nascent nature of this asset class and the ongoing evolution of its regulatory landscape. However, the rise of web3 projects like Blackbird Labs demonstrates the increasing potential of this technology to transform various industries, including the hospitality sector.
As institutional investors continue to enter the market, the volatility of cryptocurrencies might persist in the short-term. However, the long-term prospects remain bright, with the potential for both Bitcoin and the broader web3 ecosystem to disrupt traditional financial and business models. The coming months will be critical in determining how these technologies will reshape our world.
