Why is Bitcoin Crashing So Hard in August?

Bitcoin (BTC) is crashing very hard in August. On a month-to-date timeframe recorded as of Aug. 6, the top cryptocurrency was down 14.50%. At its worst, it had fallen by around 23.25% to retest a six-month low of circa $49,580.

Why is Bitcoin Price Down So Much?

The arrival of multiple bearish catalysts at once has exacerbated the Bitcoin selloff in August.

On July 31, 2024, the Bank of Japan raised its interest rates from 0% to 0.25%, which led to a sharp appreciation of the yen.

This move caught many investors off guard, as the yen had been a favored currency for carry trades due to its previously low interest rates. Traders who had borrowed yen to invest in higher-yielding assets, including Bitcoin, faced significant losses and were forced to unwind their positions.

The rate hike and subsequent yen appreciation also triggered a broader market sell-off. Japan’s Nikkei 400 index experienced its worst two-day drop since 1987, and other global markets also saw significant declines. This widespread market turmoil added to the selling pressure on Bitcoin​.

The sudden price drop led to a cascade of liquidations in leveraged trading positions, further exacerbating the decline. Over $1 billion in leveraged positions were liquidated within 24 hours, the worst since March 2024.

Concurrently, weak economic data from the US, including a disappointing jobs report, fueled fears of a potential recession. This added to the negative sentiment and reduced demand for riskier assets.

Interesting Point! Bitcoin is Mirroring Covid-19 Rout Pattern

As of Aug. 6, Bitcoin was trading for as high as $56,275, up 13.51% less than 24 hours after it dropped to its six-month low below $50,000. When looked alongside the global market fundamentals—such as growing signs of recessions—investors are betting on emergency intervention from the Federal Reserve.

On CME, markets are now pricing in over a 50 basis point (bps) rate cut by September and 125 bps by December. Earlier, the markets were betting on a 25 bps rate cut in September. 

Interestingly, the Fed responded similarly to the global market rout in March 2020, when the Covid-19 lockdowns escalated. The US central bank reduced interest rates to near zero while boosting market liquidity by buying US Treasury bonds. Bitcoin rebounded afterward and went on the rise to record one of its strongest bull runs in history.

The fundamental similarities between March 2020 and August 2024 are prompting some traders to believe that Bitcoin may repeat its rebound cycle in the coming months. For instance, a crypto influencer on X, going by the moniker “Captain Faibik,” has shared the chart below to illustrate BTC price action between now and then.

He anticipates the BTC price to resume its bull run and reach $156,000 in the best case scenario.