Recent Bitcoin Price Crash and Macroeconomic Connection

The recent Bitcoin price crash can be attributed to worsening macroeconomic conditions. Specifically, the Bank of Japan (BOJ) raising interest rates on July 31

The recent Bitcoin price crash can be attributed to worsening macroeconomic conditions. Specifically, the Bank of Japan (BOJ) raising interest rates on July 31 and a weak jobs report on August 2 triggered the recent spiraling of cryptos.

According to data from CoinGecko, the global crypto market cap fell by 4.6% in the past 24 hours to reach $2.02 trillion at the time of writing. However, over the last seven days, the market cap dropped by 16.6%.

Bitcoin price crashed by 3.0% in the last 24 hours and is trading at $52,726 (roughly Rs. 42 lakhs) at the time of writing. Over the last seven days, BTC price fell by 18.2%.

The Bank of Japan (BOJ) raised interest rates by 25 basis points on July 31, negatively impacting the carry trades. This catalyzed a 3.50% crash in the USDJPY pair, pushing it from a high of 153.906 to 148.513 on July 31.

In this case, investors borrow JPY at a low interest rate and invest in USD or assets with relatively higher interest rates. The carry traders profit by earning the difference (carry) in the interest rates between the involved pairs.

The recent BOJ decision to raise interest rates and the US Federal Reserve’s decision to cut them caused a devastating blow to these traders’ profits and forced them to liquidate. As a result of this forced move, the USDJPY pair saw a sudden crash on Wednesday.

After the jobs data on Friday, the US tech stock index (NDXT), S&P500, and other risk-on asset classes saw a sell-off. Cryptocurrencies fall into the risk-on category, which explains why Bitcoin price has been crashing since July 29.

This steep market correction has pushed the Sahm Indicator and Joshi Rule to signal “recession.”

Here is What Crypto Investors Can Expect Next

Between July 29 and August 5, the Bitcoin price crash wiped out nearly 30% of the market capitalization, as noted earlier. At the time of writing, BTC is trading at $52,726 (roughly Rs. 42 lakhs).

From a technical perspective, BTC is at a very opportune level for a bounce, but unless the macroeconomic conditions do not improve, it is unlikely that the crypto sell-off will pause or reverse.

If the $50,000 (roughly Rs. 40 lakhs) psychological level is breached, chances of revisiting the $45,156 (roughly Rs. 36 lakhs) key weekly support level are high.

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