Key Points:
- Bitcoin, ether, and crypto-related stocks experienced sharp declines this week due to growing concerns over the U.S. economy.
- Coinbase endured its worst week of the year, while bitcoin miner Marathon Digital dropped 20%.
- September is historically a challenging month for trading crypto assets.
Cryptocurrency exchange Coinbase just closed out its most challenging week of 2024. Meanwhile, Bitcoin miner Marathon Digital plummeted by 20%, and a Schwab-tracked index of crypto-related stocks fell to its lowest point since February.
This industrywide selloff reflected mounting concerns over the health of the U.S. economy, mirroring a broader decline in the prices of bitcoin, ether, and other high-risk assets. The tech-heavy Nasdaq also suffered, plunging 5.8% for the week—its worst performance since January 2022.
In addition to economic pressures, the calendar is exacerbating the crypto market’s struggles. According to CoinGlass, September is historically a tough month for cryptocurrency trading, with bitcoin averaging a 4.8% loss during the month. The Crypto Fear & Greed Index, which gauges market sentiment, currently sits in the “Extreme Fear” zone, signaling heightened anxiety among investors.
Bitcoin fell to its lowest level since February, dropping by 4% over the past 24 hours to hover around $54,000.
The sharpest selloff came on Tuesday, when weak manufacturing data stoked fears of an economic slowdown. U.S.-based spot bitcoin exchange-traded funds (ETFs) saw their worst day in over four months, with $287 million withdrawn from the market in a single day.
The economic news worsened as the week continued. On Friday, the Bureau of Labor Statistics reported that August payrolls fell short of expectations, signaling a potential slowdown in the labor market.
“The recent U.S. labor market results acted as a moment of truth for risk-on assets like bitcoin, as the labor market is considered the main sector that may influence the Fed’s decision to cut rates this month,” said Leena ElDeeb, a research analyst with ETF issuer 21Shares, in an email.
The total market capitalization of the crypto sector has fallen close to 30% from its 2024 peak of $2.67 trillion, now sitting at $1.9 trillion. Altcoins, including Solana’s SOL token, XRP, and Cardano’s ADA, all declined by over 8% in the past week. Ether, the second-largest cryptocurrency globally, plunged 12%, resting at around $2,200.
Crypto Equities Take the Hardest Hit
While risky assets across the board suffered, investors focused on crypto stocks faced particularly harsh losses.
Schwab Asset Management’s crypto-themed ETF (STCE), which includes companies like MicroStrategy, Marathon Digital, Riot Blockchain, and Coinbase, dropped 11%.
Coinbase, currently embroiled in a court battle with the SEC over accusations of unregistered securities sales, fell by 20%, hitting its lowest price since February. Meanwhile, MicroStrategy, known for its massive bitcoin holdings under founder Michael Saylor, slid by 14%, following a 12% drop the previous week.
Top bitcoin mining companies also endured significant losses. CleanSpark led the pack with a 24% decline, while Riot Platforms saw its stock fall 17%.
These declines continue a trend from last month. However, despite the steep drops in token and asset prices, JPMorgan Chase analysts noted on Friday, citing TradingView estimates, that trading volumes actually increased by 8% in August, reflecting some investor activity amidst the downturn.
Looking Ahead: The Fed and Inflation
As investors prepare for the coming weeks, all eyes are on the Federal Reserve.
The central bank is expected to cut its benchmark rate for the first time in four years during its September 17-18 meeting. Fed Chair Jerome Powell recently stated, “the time has come” to adjust interest-rate policy. Analysts predict a reduction of either 0.25% or 0.5% from the current rate of 5.25%-5.5%.
Lower interest rates could be a boon for riskier assets like crypto, which tend to attract more investment when borrowing costs decrease.
A key upcoming data point is August’s Consumer Price Index, set to be released on Wednesday. This inflation report will play a crucial role in the Fed’s decision-making process ahead of its September meeting.
The U.S. presidential debate on Tuesday may also influence the crypto market. Republican nominee Donald Trump has branded himself as the pro-crypto candidate, having recently headlined the largest bitcoin event of the year in Nashville. Many in the industry see Trump’s potential second presidency as a positive for crypto, particularly given his pledge to remove SEC Chair Gary Gensler, who has long been seen as a skeptic of the industry.
