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The reasons for the recent price declines are multi-faceted.
The primary trigger appears to be the unwinding of Yen carry trade positions, where traders borrow JPY to buy USD and other foreign assets. The Bank of Japan's recent 25 basis point rate hike likely prompted this significant unwind, leading to the worst daily drop in the Nikkei since Black Monday in 1987. With the Yen experiencing its 8th largest week-on-week appreciation since 1990.
Additionally, recent poor US payroll figures suggest the economy may be heading for a recession. Combined with escalating geopolitical tensions in the Middle East, this has led to a global sell-off across most asset classes, including Bitcoin. Even safe havens such as gold have seen a sell-off.
Investors are facing significant losses and scrambling for cash and liquid assets, with treasuries rising 1.75% over the last few days. Ironically, investors are buying an asset with an increasingly questionable credit rating.
Bitcoin tends to suffer during these cash scrambles, as seen during the March 2020 COVID crash. In these periods, as is often said: "when the tide goes out, it reveals those who didn’t have their pants on," we will likely see casualties in crypto and other markets, but history tells us it takes a while for those casualties to be revealed.
Interestingly, we have seen some of the largest whale buying since 2014. As during COVID, we suspect Bitcoin will be the first to bounce back, perhaps we have already seen this in part judging by recent price moves this week. This correction comes at a time when the FED is on the cusp of its first rate cut in September, likely to boost prices as investors flock to fixed supply assets.
