Investors are pleased to see the shortened trading week come to an end as the anticipated "September curse" remains fully in effect, with stocks, cryptocurrencies, and precious metals all experiencing a sell-off on Friday.
Analysts at Secure Digital Markets noted: "This morning, both the stock market and cryptocurrency markets opened in the red."
"As expected, Bitcoin continues to decline, potentially retesting the lower range of $50,000.
The strong correlation with the stock market remains, and given the current price trends and short-term economic outlook, many funds and traders may consider risk-off positions."
They pointed out: "U.S. job growth in August was slightly below expectations, but many have indicated that this is not enough to prompt the Federal Reserve to significantly cut interest rates later this month."
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According to Friday's non-farm payroll report, the U.S. added 142,000 jobs in August, below the forecast of 160,000, but still higher than the revised 89,000 in July.
The unemployment rate fell to 4.2%, in line with expectations, and lower than July's 4.3%."
Regarding the employment report and how the market will react in the future, Joel Kruger, a market strategist at LMAX Group, said it depends on which aspect of today's report the market chooses to focus on.
He said: "If the market chooses to focus more on the disappointing non-farm numbers, this could trigger a wave of flight to quality, as this increases the likelihood of the Federal Reserve cutting interest rates by 50 basis points later this month."
"In this scenario, we believe that this would be a net positive for cryptocurrencies, given the expected rise in investor risk appetite and the unfavorable U.S. dollar yield differential."
He said: "On the other hand, if the market chooses to focus more on the hotter hourly earnings part of the employment report, this could trigger a new round of risk-off, as this implies higher incomes could make the Federal Reserve concerned about inflation and the dangers of excessive easing."
"In this scenario, crypto assets may be more susceptible to risk-off and the more favorable U.S. dollar yield differential."
So far, traders have responded to the latest developments by withdrawing funds from the market.
At the close, the S&P, Dow Jones, and Nasdaq indexes all fell, down 1.73%, 1.01%, and 2.55% respectively.
It was the worst week for Nasdaq since June 2022, and for the S&P, it was the worst week since March 2023.
Data provided by TradingView shows that Bitcoin briefly soared to $57,000 after the employment data was released, at which point bears took control of the price trend, pushing Bitcoin below $54,000 to the lowest price since the yen arbitrage trade was unwound in early August.
The bearish development of Bitcoin's predicament has led to the most severe outflows from Bitcoin spot exchange-traded funds (ETFs) since May.
Analysts at Secure Digital Markets said: "The U.S. spot Bitcoin ETF saw the largest outflows since May 1st, with a total net outflow of $287.78 million on Tuesday."
"BlackRock's IBIT, the largest Bitcoin ETF by assets, did not report significant inflows, while the second-largest Bitcoin ETF, Grayscale's GBTC, experienced withdrawals of $50.39 million."
They added: "Fidelity's FBTC recorded the largest outflows, at $162.26 million."
"Other well-known funds, including Ark and 21Shares' ARKB, withdrew $33.6 million, while Bitwise's BITB had an outflow of $24.96 million.
In addition, ETFs managed by VanEck, Valkyrie, Invesco, and Franklin Templeton reported smaller outflows."
As traders become more bearish, signs of stress are also emerging in the derivatives market.
Analysts said: "Examining the various structures of the Bitcoin derivatives market can also provide insight into the current market conditions."
"The Bitcoin forward curve shows that the annualized basis rate is at the lowest level of the year, and the calendar futures spot premium has narrowed to 6%-9% (depending on the expiration date).
This contraction of the premium reflects a decreased interest in leveraged long positions (demand for cash leverage), indicating that traders' positions are more cautious."
Brian Dixon, CEO of OTC Capital, said that the volatility in the cryptocurrency market will continue due to various factors, and market watchers will closely monitor ETF flows.
He said: "The market is expected to remain volatile, and there will be a lot of focus on the performance of new ETFs and how traditional investors adapt to the crypto market."
"The U.S. presidential election could affect market sentiment, especially if policies supporting cryptocurrencies are promised or enacted."
He added: "In my view, the trend of institutional money flowing into cryptocurrencies, especially Bitcoin, is likely to continue, thanks to the convenience gained through ETFs."
"As large investors set the tone, this could lead to a more stable, albeit still volatile, market."
Dixon concluded: "The cryptocurrency market in 2024 is at a critical juncture, with its legitimacy enhanced by regulatory approvals such as ETF approvals, technological advancements, and growing institutional interest."
"While the direct consequences of Bitcoin halving and ETF launches have set a bullish tone, investors are advised to remain vigilant due to inherent volatility and regulatory uncertainty.
In my view, the market trajectory seems promising, with significant growth potential, but caution is essential considering the multifaceted impact."
The total market capitalization of cryptocurrencies currently stands at $1.87 trillion, with Bitcoin's dominance rate at 55.9%.