The recent Bitcoin price drop could be the start of a more dramatic decline. One cryptocurrency research firm predicted that this potential downturn would be due to an impending economic storm and cryptocurrencies separating from the overall stock market.
There have been recent positive signs of resilience in the cryptocurrency market, including institutional investor interest in spot Bitcoin ETFs and the BTC price holding up despite Mt. Gox returning billions of dollars in Bitcoin, according to analysis by 10x Research’s Markus Thielen.
The trend line near $70,000 was tested for the sixth time, but things soon turned around,” the firm wrote. “The last 48 hours have made it clear that the U.S. economy is weaker than the Fed initially believed.”
The results are driven by a growing gap between the strong performance of the stock market (particularly fueled by AI hype) and the weakness in the underlying economy as shown by the ISM manufacturing index, a key indicator measured by the Institute for Supply Management. 10x Research said, “The weak ISM index sent shockwaves through risk assets.”
“Historically, Bitcoin has seen sharp corrections when the ISM has peaked,” the report states. “What makes this situation particularly dangerous is the residual effects of COVID stimulus and aggressive government support, which may have artificially inflated equity markets.”
The Federal Reserve System took a dovish toneThe study suggests a rate cut in the fall is possible, but warns that it may be too late to prevent a recession.
The company’s forecast is further supported by its view that a recession is likely to occur in 2025, a trend that has historically been associated with stock market declines. If this scenario plays out, Bitcoin could experience a significant selloff, similar to the conditions that preceded the 2001 and 2007 recessions, the report notes.
“Let’s assume that the stock market follows the downward trend in the ISM manufacturing index or even begins to anticipate a near-recession,” the report said. “In that case, stocks would likely decline significantly over the next few quarters.
“This would have significant negative implications for Bitcoin as well,” he continued. “If this scenario plays out, Bitcoin could head back to the $50,000 level and even lower.”
The report’s bleak outlook is compounded by the recent surge in Bitcoin mining difficulty.
Alex Thorn, Director of Research at Galaxy Digital said Bitcoin mining difficulty has hit an all-time high after a 10.5% adjustment, which is also the largest difficulty increase on record.
“(As a percentage) this is the 24th largest increase since 2016, the 73rd largest increase since 2012, and the 119th largest increase of all time,” he tweeted.
this Unprecedented surge in mining Difficulty reflects increasing competition among miners and the increasing computing power being used to secure the Bitcoin network.
This highlights the robustness of the Bitcoin ecosystem while introducing new dynamics to the market. As mining difficulty increases, it can put pressure on miners’ profitability, which can affect their decisions to hold or sell their Bitcoin, which can ultimately affect the market price.
Edited by Ryan Ozawa
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