Crypto Market Enters Volatile Period: September Effect, Rate Cut Expectations, and Regulatory Pressure Intertwine

Crypto Market Enters Volatile Period: September Effect, Rate Cut Expectations, and Regulatory Pressure IntertwineThe crypto market has moved away from its past independent trajectory, becoming increasingly intertwined with macroeconomic cycles as traditional financial institutions enter the scene. Since the beginning of the year, the prices of major cryptocurrencies like Bitcoin have fluctuated in line with global markets

Crypto Market Enters Volatile Period: September Effect, Rate Cut Expectations, and Regulatory Pressure Intertwine

The crypto market has moved away from its past independent trajectory, becoming increasingly intertwined with macroeconomic cycles as traditional financial institutions enter the scene. Since the beginning of the year, the prices of major cryptocurrencies like Bitcoin have fluctuated in line with global markets. On the morning of September 14th, Bitcoin surged briefly, breaking through the $60,000 mark, with a daily gain exceeding 4%. However, prior to this, Bitcoin had experienced consistent downward pressure, and currently, its trading price remains approximately 20% lower than its historical all-time high of $73,500, reached earlier this year. Entering September, Bitcoin spot ETFs also faced a wave of capital outflows, exceeding $1 billion.

Every September has been a challenging period for Bitcoin. Looking at historical data, September is typically one of the worst performing months for Bitcoin, commented Yu Jianing, Principal of Uweb and Co-Chair of the Blockchain Committee of the China Communications Industry Association. He pointed out that since 2010, Bitcoin has yielded negative average returns in September, with nine out of the past 13 Septembers witnessing price declines. This seasonal effect has gradually formed a psychological expectation among investors. This September effect also manifests in broader financial markets, particularly with risk assets like Nasdaq, which often experience fluctuations and corrections in September.

Short-Term Volatility Expected

The direction of the Federal Reserve's monetary policy, particularly rate cut expectations, has a significant impact on market sentiment and the price of risk assets. Although a rate cut is generally considered positive, it can also accompany concerns about an economic recession, creating a double-edged effect that fuels market uncertainty.

Bitfinex published a report suggesting that after months of sluggish price movements, cryptocurrency investors had anticipated a rate cut in September by the Federal Reserve to drive a bull market. However, escalating economic recession fears could lead to deeper corrections. If a loose cycle coincides with a recession, Bitcoin could decline by 15% - 20% following the September rate cut. Assuming BTC is priced around $60,000 before the rate cut, the potential bottom could be between $40,000 and $50,000.

Markus Thielen, founder of 10xResearch, echoes this sentiment, arguing that a rate cut in September solely due to the inflation crisis would be a short-term positive for Bitcoin. However, if the rate cut is driven by an economic recession, whether in September or later, Bitcoin would face significant selling pressure.

Commenting on Bitcoin's price volatility, Wang Yingbo, Ph.D. in Economics from the Shanghai Academy of Social Sciences, remarked that due to the uncertain value standard of computing power, digital currencies are still primarily investment assets, with their monetary attributes yet to be proven. Consequently, price fluctuations are extreme, making it challenging for investors lacking a long-term perspective to manage risk. He recommends proceeding with caution. Yu Jianing similarly advises that in times of heightened market sentiment volatility, investors should prioritize risk management by avoiding chasing rallies or selling on dips, a key strategy to protect investment returns.

Uncertainty Surrounding the US Elections

The upcoming US elections have also added uncertainty to Bitcoin's trajectory. The different political stances and policy inclinations of the candidates could lead to significant price swings for cryptocurrencies. "The presidential election cycle is typically accompanied by policy uncertainty, which has a noticeable effect on market sentiment. Particularly, if the candidates' views on digital assets are ambiguous or if they lean towards increased regulation, the market could experience short-term volatility," Yu Jianing stated.

Drawing on Trump's pro-cryptocurrency policy stance, US fund company Bernstein predicts that if Trump wins the election, it would create new opportunities for the crypto industry and potentially boost investor confidence, with Bitcoin potentially reaching the range of $80,000 - $90,000 by the end of the year. Should Harris prevail, however, it could push Bitcoin below $50,000, potentially diving to the $30,000 - $40,000 range.

It's noteworthy that during the first US presidential debate, neither Trump nor Harris mentioned cryptocurrency. Following the debate, Trump-related meme coins generally experienced declines.

Other Influencing Factors

Additionally, numerous factors influence Bitcoin's price fluctuations. Crypto data provider Kaiko recently released a research report highlighting that while crypto market liquidity has improved since the FTX collapse, caution is still warranted regarding the potential impact of large-scale position liquidations. Kaiko notes that the Mt.Gox bankruptcy case still involves approximately 46,000 Bitcoin (valued over $2 billion) awaiting distribution to creditors, potentially becoming a major source of market concern. Furthermore, Bitcoin held by US and UK governments, along with holdings of institutions like Tesla, could exert potential selling pressure in the coming months.

Despite market anxieties, bullish voices persist. Grayscale's report suggests that a weakening US dollar and continued low interest rates would benefit Bitcoin. The primary downside risks to crypto valuations are further increases in unemployment and a potential recession. However, US policymakers typically intervene with monetary easing and consumer stimulus when signs of a recession emerge. ETCGroup's Head of Research asserts that Bitcoin's non-circulating supply has recently hit a record high of 74% of the total supply, indicating that the supply shock caused by halving is intensifying. This factor will provide increasing impetus for Bitcoin and other crypto assets in the months to come.

In Yu Jianing's view, Bitcoin's future price trajectory will continue to be influenced by a combination of these factors. In the short term, Bitcoin is likely to navigate through volatility in search of new support or resistance levels. From a medium-to-long-term perspective, increased global liquidity, an improved economic outlook, and a more favorable regulatory environment could pave the way for Bitcoin to regain its upward momentum.

Crypto Fines Reach $4.7 Billion

September is often a peak period for financial market volatility, coupled with the US SEC's annual enforcement activities escalating during this time, the digital asset market faces greater regulatory pressures, Yu Jianing pointed out. The SEC's enforcement actions not only directly affect individual digital asset projects but also trigger a chain reaction in the broader market, fueling anxiety among market participants.

Recently, the US Securities and Exchange Commission (SEC) issued an investor alert, cautioning investors about speculation surrounding exchange-traded products (ETPs) for Bitcoin and Ethereum. The alert explicitly states that Bitcoin and Ethereum are highly speculative investments, and even investing in them through ETP structures requires navigating significant risks associated with price volatility and potential market inefficiencies.

This announcement came shortly after US Bitcoin spot ETFs witnessed substantial capital outflows. Data reveals that US Bitcoin spot ETFs experienced their largest single-day net outflow since the product's launch on September 9th. In the preceding trading days, investors withdrew over $1 billion from Bitcoin ETFs.

As the cryptocurrency market rapidly grows, regulators are becoming aware of its potential risks. As regulatory policies mature, the cryptocurrency industry will progressively move towards compliance. Simultaneously, as the market matures, investor education will gain increasing importance, fostering greater risk awareness and investment capabilities among investors, noted Wu Gaobin, Vice-President of the Two-Industry Integration Committee of the China Communications Industry Association.

Recently, the arrest of Telegram founder and CEO Pavel Durov in France has plunged the entire cryptocurrency industry back into panic due to tightening regulation. Subsequently, the NFT platform OpenSea received a Wells notice from the US SEC, becoming the latest crypto project targeted by the SEC, following Coinbase, Bittrex, Uniswap, and Robinhood. It's evident that global markets are tightening regulatory oversight of the cryptocurrency market.

According to a report published by SocialCapitalMarkets, the US SEC has implemented enforcement actions valued at nearly $4.7 billion against cryptocurrency companies and their executives in 2024, representing over a 3,000% increase compared to 2023. The report reveals that the SEC has levied fines totaling $7.4 billion against the cryptocurrency industry since 2013.

The digital asset industry is facing unprecedented regulatory pressure, Yu Jianing stated. Compliance is not only a crucial means of mitigating market risks and protecting investor interests but also a key factor in driving further integration of the digital asset industry with traditional financial markets. By establishing a more robust regulatory framework, regulators can steer the market towards a healthier and more sustainable path, paving the way for the industry to attract more institutional investors and mainstream capital.

Yu Jianing believes that future developments in the digital asset industry will revolve around compliance and transparency. In this process, companies within the industry will face more stringent regulatory requirements, necessitating proactive adjustments to their operational strategies to align with the laws and regulations of various countries. Simultaneously, compliance will also present more growth opportunities for the industry, facilitating deeper integration with traditional financial markets and propelling digital assets to become a more integral part of the global economic system.

Editor: Xu Yunxian, Chief Editor: Gong Peijia