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Headlines:
- Crypto Market Selloff: (Bitcoin) (BTC) and (Ether) (ETH) experienced significant declines, with BTC dropping to February levels and ETH falling to prices not seen since December. Over the past 24 hours, BTC is down 12% and ETH has lost 21%, erasing all of its year-to-date gains.
- Trigger from Japan's Monetary Policy: The selloff was triggered by the Bank of Japan's unexpected interest rate hike, which caused the yen to surge and the Nikkei stock index to tumble. This turmoil spread to U.S. markets, causing further declines in the Nasdaq.
- Uncertainty in U.S. Federal Reserve Policy: The U.S. Federal Reserve's recent stance on holding interest rates steady, coupled with uncertainty about future rate cuts, has added to market instability. Traders are now fully expecting rate cuts in September, contributing to the overall market correction.
A broad weekend selloff in crypto accelerated during Sunday evening U.S. hours, sending bitcoin (BTC) plunging to levels not seen since February and (ether) (ETH) back to prices not seen since December. (Bitcoin) (BTC) is down 12% over the past 24 hours and 20% over the past week. Ether (ETH) has dropped 21% in the last 24 hours and 30% over the past week, erasing its year-to-date gains and falling roughly 3% since January 1.
The trigger for this massive correction in both crypto and traditional markets may have been the Bank of Japan's recent hike in its benchmark interest rate. This monetary tightening caused the yen to surge and the country's Nikkei stock index to tumble. Early Monday, the Nikkei fell another 6%, now down roughly 15% over the past three sessions and 20% from its mid-July peak.
The turmoil in Japan spread to the U.S., where the Nasdaq dropped more than 5% in the final two sessions of last week. Nasdaq futures declined another 2.5% on Sunday evening.
Adding to the market's uncertainty, the U.S. Federal Reserve held rates steady last week but appeared less committed to cutting rates in September, which many market participants had expected. Whether this was a policy error by the Fed remains unclear, but markets are now anticipating lower U.S. base rates in September, with traders pricing in a 100% chance of a cut, including a 71% chance of a 50-basis point cut and a 29% chance of a 25-basis point cut.
Looking further out, the U.S. 10-year Treasury yield has dropped to 3.75% on Sunday evening, down from 4.25% a week ago and significantly below the current fed funds target of 5.25%-5.50%.
