Cryptocurrency Leads the Recovery as Recession Worries Subside. Where Will the Market Head?

Cryptocurrencies experienced a significant surge, with Bitcoin recording its most substantial single-day increase in over 16 months, as investors gravitated back to riskier assets throughout financial markets.

Bitcoin, the premier digital currency, climbed up to 8.6%, surpassing the $59,800 mark, whereas Ether, which ranks second in market capitalization, saw gains close to 10% at its peak. Despite these gains, both cryptocurrencies remain below their valuation from a week earlier, after suffering a sharp decline on Monday that marked the most severe market drop since the FTX collapse in 2022.

■ Recession worries subside as jobless claims were lower than expected

On Thursday, data released by the U.S. Department of Labor showed that for the week ending August 3, the number of initial jobless claims was 233,000, lower than the previous week's 250,000 and below economists' expectations of 240,000. This reduction alleviated concerns about an impending economic recession in the United States, and investor sentiment rose, with financial markets turning towards recovery on Thursday. As the cryptocurrency market has been trending similarly to other risk assets recently, the rally in other major assets has coincided with a sharp rise in cryptocurrencies.

■ Positive cryptocurrency news revitalizes market sentiment

On Thursday, a U.S. judge approved a consent order requiring FTX and its sister trading company Alameda Research to pay $12.7 billion to creditors, ending a 20-month-long litigation. Market analysts predict that with former FTX users reinvesting their funds in digital assets, a portion of the capital will flow back into the cryptocurrency market, significantly enhancing market liquidity and depth.

Meanwhile, Russian President Vladimir Putin signed a bill legalizing cryptocurrency mining in the country. Ki Young Ju, CEO of cryptocurrency analytics firm CryptoQuant, commented, "Russia seems to be taking steps to keep up with the United States. National-level Bitcoin FOMO (Fear of Missing Out) is heating up, and their participation will increase the hash rate, strengthen network infrastructure, and diversify miners."

Besides, Ripple's years-long legal dispute with the U.S. Securities and Exchange Commission (SEC) also reached a milestone. A federal judge fined Ripple $125 million, ruling that its retail sales through exchanges did not violate any laws. Following the news, XRP temporarily surged from $0.50 to $0.64 (a 28% increase), with trading volume reaching $4.2 billion (compared to $1.2 billion on Tuesday), and open interest in contracts jumped by $200 million.

Yuya Hasegawa, a cryptocurrency market analyst at Japanese Bitcoin exchange Bitbank, believes that holding Bitcoin is better than any fiat currency in the long run, but investors tend to sell high-volatility assets first when risks arise.

Michael Saylor, the founder of "Bitcoin whale" MicroStrategy, recently revealed that he personally bought about $1 billion worth of Bitcoin.

■ Cryptocurrency industry calls for more government regulatory support

A group of over 50 cryptocurrency companies, known as the Crypto Market Integrity Coalition (CMIC), is calling on U.S. President Joe Biden and Vice President Kamala Harris to establish clear rules for the digital asset industry. They argue that without these rules, consumers will be harmed, and innovation will come to a halt. The coalition, founded by Coinbase, Circle, and The Digital Chamber, and including members such as Robinhood, BitGo, and Chainalysis, wrote in a letter to the White House on Wednesday that other jurisdictions, including the EU, Japan, and the UK, have already begun to establish regulatory frameworks. The members state that the lack of clear rules for the enforcement of cryptocurrency by regulatory authorities has led to compliant U.S. companies losing customers and market share to entities that do not follow the rules. The coalition also wrote, "We hope to see the U.S. government work with Congress to enact such foundational legislation this year."

It's worth mentioning that, on Tuesday, Donald Trump, the Republican candidate for president, announced on Truth Social that he would conduct "a major interview with Elon Musk" on the evening of Monday, August 12. Although no further details were provided, Investors look forward to further communication between the two on cryptocurrency

Earlier on July 27, just two weeks after Trump had survived an assassination attempt in Pennsylvania, he delivered a keynote address at the biggest Bitcoin gathering of the year. Hours later, he was publicly endorsed by Tesla. In Nashville, rumors had been swirling all week that Musk would make a surprise appearance at the conference, and maybe even moderate a fireside chat with Trump, although Musk didn't show up that time. From this, it is clear that the level of support for cryptocurrencies is becoming an important topic and tool in the U.S. elections.

■ Some analysts are cautiously optimistic about the short-term trends for cryptocurrencies

Despite the presence of these catalysts, analysts remain cautious about the future development of the cryptocurrency market, believing that the effects of these catalysts may have already been reflected in the prices. The bank indicated that because Bitcoin's price is still too high relative to its production cost—the average production cost of Bitcoin mining is about $49,000—any price trend below this level would put pressure on miners, thereby further depressing the BTC price.

Market analyst Roman stated that Bitcoin's recovery is currently progressing well, but he "still expects Bitcoin to fall to a low point after retesting the $60,000 level, then we will attempt a potential reversal."

Source: CNBC, Investing.com