In seeking to explain Monday's sell-off across traditional markets and cryptocurrencies, the digital-asset firm QCP Capital rattled off a list of seven major market events that occurred in Septembers past, from the 1929 stock market crash to the Lehman Brothers bankruptcy in 2008.
There might be some deep human connection with the autumnal equinox — when the days turn shorter than nights in the northern hemisphere and summer turns to fall, according to the firm. "The human nervous system typically undergoes major measurable perturbations" during this period, QCP wrote Monday in its daily market update.
The outlook is cloudy but there's a risk of a steep plunge similar to the sell-off in March that took bitcoin prices to their 2020 lows just below $4,000. One catalyst could be the upcoming U.S. presidential election, which has become more contentious in recent days following the death of Supreme Court Justice Ruth Bader Ginsburg.
Bitcoin (BTC) on Monday posted its biggest drop in three weeks, retreating from the psychological $11,000 hurdle that the cryptocurrency until just recently had seemed poised to eclipse. There was also an apparent unwind of the recent frenzy in decentralized finance, or DeFi, with associated digital assets from ether (ETH) to Aave (LEND) and Curve (CRV) falling even harder.
"It got to a point where the market demand just kind of got exhausted, and there wasn't enough new capital flowing to sustain the push higher," said John Todaro, an analyst for the digital-asset firm TradeBlock.
Despite recent bets in foreign-exchange markets that massive money printing by the Federal Reserve and other central banks might drive down the value of the dollar, investors apparently sought refuge in the U.S. currency. The U.S. Dollar Index charted its biggest gain in a month.
"The dollar's not dead, the dollar's a survivor," Denis Vinokourov, head of research for the cryptocurrency prime broker Bequant, said in a WhatsApp audio interview. "It's a real flight to quality, and cash is king, and cash is the dollar, nothing else. The dollar rules."
Monday's sell-off nearly wiped out 2020 gains for the Standard & Poor's 500 Index of large U.S. stocks, though ether, bitcoin and gold are still sitting on substantial 2020 gains.
There's a lot of major factors buffeting the global economy and geopolitical landscape, as the coronavirus continues to spread and the U.S. elections approach. President Donald Trump is pushing to nominate and confirm a pick to the high court prior to the election, even though Republican leadership had previously suggested such a step would be inappropriate.
Gavin Smith, CEO of the cryptocurrency firm Panxora, says that if the election leads to political turmoil in the U.S., he could see the largest cryptocurrency trading as low as $7,000.
"The danger to the crypto market is much the same as we saw in March," Smith said. "If you get that big sell-off in risk assets, there will be that liquidation of bitcoin."
He says central bank money printing should eventually push up inflation, which could be a catalyst for higher bitcoin prices, though "that's very much a 2021 story."
"When we've seen the election past, all of a sudden it's going to become clear just how much money has been pumped into the system," Smith said.
A battle over confirmation of Ginsburg's successor could derail any last-ditch efforts to revive any effort to provide new U.S. fiscal stimulus, even amid growing signs that the economic recovery is stalling.
The Federal Reserve could step in to increase its pace of money printing, but any such decision would have to be made on an emergency basis, since the next regular meeting isn't scheduled until Nov. 5, two days after the election.
The Fed has already cut interest rates close to zero and is buying U.S. Treasury bonds and government-backed mortgage securities at a pace of $120 billion a month. Chair Jerome Powell reiterated in prepared testimony for a scheduled Congressional appearance Tuesday that officials "remain committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible."
But Mati Greenspan, founder of the foreign-exchange and cryptocurrency analysis firm, Quantum Economics, told subscribers in a daily newsletter, said that the bar will be high for further action.
"The Federal Reserve and other central banks have already injected quite a lot of stimulus and are already committed to keeping rates suppressed for a long time to come," Greenspan wrote. "There doesn't seem to be much in the way of action from them for markets to look forward to."
Bitcoin Watch
Bitcoin fell by more than 4% on Monday, confirming a bear flag breakdown on the daily chart.
The bearish technical pattern indicates the bounce from the recent low of $9,869 has ended, and the pullback from the August high of $12,476 has resumed.
Analysts foresee a more significant decline in the cryptocurrency if the global stock markets extend Monday's sell-off.
"Sustained risk-off in broader equity markets will lead to heavy offers across major cryptocurrencies," Matthew Dibb, Stack Funds' co-founder and COO, told CoinDesk. "Bitcoin may revisit September lows" around $9,870.
Monday's drop has boosted demand for put options or bearish bets. According to data source Skew, the one-month put-call skew has increased to over 4% from -3% on Sunday. The positive figure indicates that put options are drawing higher prices than calls.
However, three- and six-month skews remain negative, meaning the long-term bias remains bullish.
- Omkar Godbole
Token Watch
Uniswap (UNI): Arca Funds chief legal officer argues that tokens probably aren't securities under the SEC's test.
Swerve (SWRV): Liquidity in this three-week-old automated market maker for stablecoins has dried up following the conclusion of a "boosted reward period," according to Messari.