Non-farm data stirs up trouble again, while derivatives data hint at “greater downside potential”

The first week of September saw a dismal end to financial markets.

According to the non-farm payrolls report released on Friday, the U.S. added 142,000 jobs in August, lower than the 160,000 expected by economists, but still higher than the revised 89,000 in July. The unemployment rate fell to 4.2%, in line with expectations, down from 4.3% in July.

The report has traders re-evaluating the size of the Fed's rate cuts. According to the CME's FedWatch tool, traders see a more than 70% chance of a 25 basis point rate cut at the Federal Open Market Committee meeting on Sept. 18, and a near 30% chance of a larger 50 basis point cut.

Federal Reserve Board Governor Waller said in a speech that day that if the data requires, he supports further rate cuts and, if necessary, a larger rate cut.

Some observers believe a smaller rate cut would be more bullish for risk assets, as a 50 basis point cut could signal the Fed is growing concerned that the U.S. economy is sliding into a recession.

At the close of the day, the S& P, Dow and Nasdaq all fell, down 1.73%, 1.01% and 2.55% respectively . The Nasdaq had its worst week since June 2022, and the S&P had its worst week since March 2023.

According to Bitpush data, Bitcoin once soared to $57,000 after the release of the employment data, and then the short-selling force pushed the price below $53,000, and once retreated to the lowest price since the closing of the yen carry trade in early August. As of press time, Bitcoin has slightly rebounded to around $53,800, a 24-hour drop of 4.8%.

Altcoins were hit hard, with Sui (SUI) the only one in the top 200 to post gains. Among the losers, ConstitutionDAO (PEOPLE) led the decline, falling 11.8%, Echelon Prime (PRIME) fell 9.5%, and Popcat fell 9%.

The current overall market value of cryptocurrencies is $1.87 trillion, with Bitcoin accounting for 56% of the market share.

Derivatives data suggests "greater downside"

New data from the cryptocurrency derivatives market suggests bearish sentiment among traders is growing, with options activity indicating expectations for further price declines for major cryptocurrencies such as Bitcoin and Ethereum.

A new report released by crypto exchange Bybit in collaboration with analytics and research platform Block Scholes highlights that the implied volatility levels of Bitcoin and Ethereum options at different expiration dates have risen significantly. This surge is particularly evident in short-term options, indicating increased uncertainty in the near term.

Nathan Thompson, chief technical analyst at Bybit, explained: “The implied slope, which is the difference in implied volatility between out-of-the-money put options and call options, can reveal the current market sentiment for BTC and ETH options. Rising implied volatility for call options is a bullish indicator, while higher implied volatility for put options is bearish.”

He added: "Everything that's in the options market right now suggests there's more downside."

Thompson said that based on the overall trends observed in derivatives data, inexperienced traders would be better off sitting on their hands until the market figures out where to go next.

Analysts at Secure Digital Markets pointed out: "BTC's strong correlation with the stock market still exists. Given the current price trend and short-term economic outlook, many funds and traders may consider reducing risks, and there is a high probability of retesting the low range of $50,000."

Keep an eye on ETF flows

Spot BTC exchange-traded funds (ETFs) saw their worst outflows since May.

Lookonchain data shows that the U.S. spot Bitcoin ETF has seen the largest outflow since May 1, with a total net outflow of $287.78 million on Tuesday. The largest Bitcoin ETF by asset size, IBIT under BlackRock , did not see significant inflows, while the second largest Bitcoin ETF, GBTC under Grayscale, saw an outflow of $50.39 million.

Fidelity's FBTC recorded the largest outflow of $162.26 million. Other well-known funds, including Ark and 21Shares ' ARKB, had outflows of $33.6 million, and Bitwise 's BITB had outflows of $24.96 million. In addition, ETFs managed by VanEck , Valkyrie , Invesco , and Franklin Templeton also saw small outflows.

OTC Capital CEO Brian Dixon commented that volatility in the cryptocurrency market will continue due to various factors and market observers will pay close attention to ETF flows.

He said: "The market is expected to remain volatile, with a focus on the performance of new ETFs and how traditional investors adapt to the cryptocurrency market. The US presidential election may affect market sentiment, especially if pro-crypto policies are promised or implemented. I think the convenience of ETFs has driven institutional money into cryptocurrencies (especially Bitcoin), and this trend is likely to continue."

Dixon concluded: “The crypto market in 2024 is at a critical juncture, characterized by increased legitimacy through regulatory approvals such as ETF approvals, technological advancements, and increased institutional interest. While the immediate aftermath of the Bitcoin halving and ETF launches set a bullish tone for the market, investors are advised to remain cautious due to inherent volatility and regulatory uncertainty. In my opinion, the market’s trajectory looks promising with the potential for significant growth, but it is critical to proceed with caution given the multiple influences.”