Bitcoin Falls Under $58,000 as Sahm Rule Triggers Recession Fears

With global liquidity - a term that encompasses the M2 money supply of all major economies - recently hitting a new all-time high of $95 trillion, one would ordinarily expect Bitcoin to exhibit phenomenal strength, given its high sensitivity to this key metric.

Global liquidity - a term that encompasses the M2 money supply of all major economies - recently hit a new all-time high of $95 trillion. One would ordinarily expect Bitcoin to exhibit phenomenal strength, given its high sensitivity to this key metric. Yet, the world's leading cryptocurrency is currently moving in the opposite direction. The reason: growing probability of a recession.

Bitcoin fell below the crucial support of $58,000 on Thursday, continuing its recent bearish trend as the US jobs report for July sparked fears of a recession in the world’s largest economy.

After rising above $63,000 in late July, BTC has now shed nearly 10 percent from its recent highs. The cryptocurrency encountered strong selling pressure at the 200-day moving average, which currently coincides with the psychological level of $60,000.

Crucially, Bitcoin’s 30-day correlation with the S&P 500 index flipped positive in June, after spending much of this year in deeply negative territory. This suggests that the cryptocurrency’s recent price performance is largely dictated by the demand-destruction fears in the US stock market.

The Sahm Rule was triggered on Friday, August 2, 2024. Over the past three months, the average unemployment rate rose to 4.13 percent, which is significantly higher than the lowest three-month average from the previous year (which was 3.63 percent between June and August 2023).

This condition of the Sahm Rule is now met for the first time since the onset of the COVID-19 pandemic, which means that the US economy is now at a high risk of entering a recession.

This Friday, the Non-Farm Payroll report upended markets throughout the globe after it disclosed that the rate of job additions in the US in July fell far short of analysts' consensus expectations.

The unemployment rate also rose in August, reaching 4.3 percent. This marks the first increase in the unemployment rate since December 2023.

Moreover, the report also formally triggered the so-called Sahm Rule conditions, which posit that a recession materializes in the US when the 3-month moving average of the national unemployment rate (U3) moves 0.5 percent above the minimum of such three-month averages over the past twelve months.

The market had priced in a benign slowdown in the US jobs market, with economists having anticipated a print of 175,000 new jobs and a unemployment rate of 4.1 percent. Instead, the NFP brought news of only 114,000 jobs having been added to the US economy last month.

This then led to a violent repricing of the interest rate expectations, with the market now expecting a full percentage cut in the Federal Reserve's benchmark interest rate between September and early 2025.

This narrative shift is also evident in the recent discourse among economists and financial analysts, with many arguing that the Federal Reserve should begin cutting interest rates as soon as possible to avert a hard landing for the US economy.

I am stunned by how quickly the market narrative has changed about what the Federal Reserve should do.

The widespread comfort of just a few days ago about the Fed having time to wait until September to cut rates by 25 bps is being replaced by more analysts and economists calling…

— Mohamed A. El-Erian (@elerianm) August 2, 2024

This narrative shift is particularly interesting in light of the fact that the Federal Reserve only began raising interest rates in March 2024, having spent the previous two years cutting them to stimulate the US economy during the COVID-19 pandemic.

Now, as the US economy slows down sharply and recession fears grow, the market is quickly pivoting toward anticipating interest rate cuts, even as the Federal Reserve is yet to complete its hiking cycle.

On the other hand, if the US does enter a recession, and if Bitcoin continues on its current bearish trajectory, this correlation regime will again flip positive, leading to a scenario where both BTC and US equities suffer together.

Crucially, Bitcoin’s 30-day correlation with the S&P 500 index flipped positive in June, after spending much of this year in deeply negative territory. This suggests that the cryptocurrency’s recent price performance is largely dictated by the demand-destruction fears in the US stock market.

现在，如果随着衰退预期正式纳入估值上升，股市将遭受严重打击，而比特币继续保持当前的看跌轨迹，那么这种相关性将再次转为正值。

伯克希尔哈撒韦公司本季度抛售的股票数量比其历史上任何其他季度都要多。

他们知道即将发生什么。 ？ pic.twitter.com/Y4CnWHitdr

—雅各布·金（@JacobK

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