US recession fears hit crypto and equity but Japan rate hike the real culprit

US recession fears sparked by the job growth figures released after market hours on Friday weighed on the global equity market and the crypto sector on Monday. The US Labor Department underlined that the unemployment rate in July rose month-on-month.

As per Coinglass analysis, over 277,000 traders liquidated their BTC holdings in 24 hours, briefly pushing Bitcoin price to under $50K. The market’s reaction to the latest developments has ignited fears of an economic recession. Crypto analyst Alex Krüger suggests that the problem seems to be that the Federal Reserve did not cut interest rates while Japan tightened its monetary policy.

US recession fears and delayed rate cuts weigh down crypto  

The US Labor Department reported that the employment market merely added 114,000 jobs in July.  This figure fell short of expectations. The unemployment rate also rose to 4.3% from 4.1% reported in June. On the back of inflation, the US central bank tightened its monetary policy between 2022 and 2023.

Meanwhile, the Bank of Japan concluded July with an interest rate of 0.25%.

Crypto analyst Alex Krüger suggests that the overall market downturn is a result of economic concerns, and extends beyond cryptocurrencies. On August 5, Bitcoin (BTC) briefly dipped below the psychological mark of $50,000. Investor liquidations followed. According to Coinglass, at least 277,000 traders liquidated around $1 billion of their holdings in the past 24 hours.

The market weakness followed reports of an impending US recession. Krüger believes the main issue is not the state of the US economy. He suggests that the problem seems to be that the Federal Reserve did not cut interest rates while Japan increased its own key rate.

He said in a post on X, “A financial crisis mainly driven by a cascade of levered Japanese speculators is a much better alternative than a financial crisis driven by the US entering into recession.”

JPMorgan analysts anticipate that the Fed will likely cut the policy rate by 50 bps in September. However, the bank believes that it would have cut the rate by at least 25 basis points if the payroll data had been released before the FOMC meeting. JPM analysts also expect another 50 bps cut in November as cited by Bloomberg.

JPMORGAN: “.. Had the Fed had this [jobs] report in hand going into the #FOMC meeting this past Wednesday, it almost certainly would have cut the policy rate by at least 25bp. Now that it looks to be materially behind the curve, we expect a 50bp cut at the September meeting,… pic.twitter.com/A0YPMvsRSF

— Carl Quintanilla (@carlquintanilla) August 3, 2024

Oil takes a hit as global equities suffer  

The market turmoil extended beyond the crypto market. The Nikkei 225 index in Japan reportedly marked its worst day since the “Black Monday” crash of 1987. Oil prices also touched an almost eight-month low on Monday as US economic concerns harm it as the world’s top oil consumer.

Goldman Sachs reportedly raised the probability of a US recession from 15% to 25%. Economist Mohamed A. El-Erian finds that the probability remains at 35%. In addition, the geopolitical situation seems to be worsening as well due to disruptions in the Middle East.

The focus is now on action by the Federal Reserve which could stabilize the equity market. An emergency rate cut could inject more liquidity into the market, also benefitting BTC as the crypto market struggles to find ground in a weak broader setup.