By Marcus Sotiriou, Analyst at the Publicly Listed Digital Asset Broker Global Block
Bitcoin fell around 5% last weekend, the week started at around $20,500 at the time of writing. The downward trend in the crypto market continues, due to heightened fears of an impending recession. The Google search volume of recession exploded in recent weeks.
The June jobs report, which was released last week, showed strong employment with strong wage growth, raising the risk of a recession. In effect, this results in a more aggressive Federal Reserve, which must fight to help minimize domestic inflation. A recession usually means that P/E multiples (what investors are willing to pay for a stock, given its earnings) would be compressed, leading to a potential decline in stock prices, thus impacting crypto due to the currently high correlation.
Within the crypto ecosystem, concerns about a liquidity crisis have diminished. Justin Sun, the founder of the TRON protocol, which is one of the largest blockchain networks, said he is ready to join Sam Bankman-Fried in offering financial support to crypto companies struggling with liquidity problems. Sun said he could spend up to $5 billion on acquisitions, after several companies approached him for help.
Sam Bankman-Fried’s FTX has previously provided support to Voyager Digital and BlockFi, with Binance CEO CZ saying 50-100 crypto firms are asking for help because the exchange has the “largest reserve of sector cash flow. Sun claimed that a similar number also contacted TRON.
According to the TRON website, their DAO has $2.3 billion in reserves. Sun said, “Our interest is in platforms with a large user base, both CeFi and DeFi platforms.” Sun said he believes the worst of the current market downturn is behind us. He claimed: “I currently think the deleveraging process is past the worst time so we just need to clean it up and move on. I do not think so [the] the market will be super bullish, of course. The macro environment, however, could mean that the liquidity crunch lingers longer, as the Federal Reserve is forced to react to still-high inflation and continue to withdraw liquidity.