By Marcus Sotiriou, Analyst at the publicly listed digital asset broker GlobalBlock 

Bitcoin dropped around 5% over last weekend, the week started at around $20,500 at time of writing. The downtrend in the crypto market persists, due to increased fears of an incoming recession. The google search volume of recession has skyrocketed in recent weeks.

The June jobs report, which was released last week, showed that employment is strong with high wage growth, increased the chance of a recession. This is because it results in a more aggressive Federal Reserve, who must fight to help minimise domestic inflation. A recession typically means that P/E multiples (which is what investors are willing to pay for a stock, given its earnings) would be compressed, resulting in a potential decrease in stock prices, therefore impacting crypto due to the currently high correlation.

Within the crypto ecosystem, concerns around a liquidity crisis have decreased. Justin Sun, the founder of the TRON protocol, which is one of the largest blockchain networks, said he’s ready to join Sam Bankman-Fried in offering financial support to crypto firms that are struggling with liquidity issues. Sun said he could spend up to $5 billion on acquisitions, after several companies have reached out to him for help.

Sam Bankman-Fried’s FTX has already provided support to Voyager Digital and BlockFi, with Binance CEO CZ claiming that 50-100 crypto firms are asking for help, due to the exchange having the “largest cash reserve in the industry.” Sun claimed a similar number have reached out to TRON too.

According to TRON’s website, their DAO has $2.3 billion in reserves. Sun said, “Our interest is platforms with a large user base, both CeFi and DeFi platforms.” Sun said he thinks the worst of the current market downturn is behind us. He claimed, “I currently think the de-leverage process is passed the worst time, so we just need to clean it up and move forward. I don’t think [the] market will be super bullish, of course.” The macro-economic environment may mean that the liquidity crisis persists for longer though, due to the Federal Reserve being forced to respond to persistently high inflation and continue to withdraw liquidity.

Bitcoin is crashing again, temporarily plunging it to below $20,200 earlier today, as spooked traders have frantically been selling off the cryptocurrency before the US Federal Reserve is expected to do something it hasn’t done in 28 years — increase interest rates by three-quarters of a percentage point.

In response to soaring inflation and volatile financial markets, the central bank will hike the rate that banks charge each other for overnight borrowing to a range of 1.5%-1.75%.

BTC and ETH has fallen to trade just above $20,000 and $1,000, respectively, as the selloff across broader crypto markets continued. This means the total value locked (TVL) of tokens across all blockchains declined by over 8% in the past 24 hours.

Mikkel Morch, Executive Director at crypto/digital asset hedge fund ARK36, is closely following the price movements, he says, “Bitcoin has been really caught in the crossfire these past few days. There is still a huge gap between nominal rates and real rates so there is much more room for the Fed and other central banks to hike in the months to come. Investors can’t realistically expect risk assets to have a more sustained uptrend until the Fed pivots.

Additionally, some parts of the broader crypto ecosystem are facing a rather harsh reckoning. As the reality of the bear market starts to settle in, the hidden leverages and structural weaknesses of projects that only worked when the prices went up are finally brought to light. In the long term, tokens with strong use cases and utility will survive – as they did in the previous bear markets. But some companies within the space have had unsustainable business models and now present a contagion risk.

So Bitcoin is hit with a double whammy and it is more than likely that we are going to see sub-$20K prices soon. Some are calling for $12K – and while this can happen, we think that this price tag has a relatively low probability for now. Today, all is in the hands of the Fed. A 75 basis point rate hike would likely take us to $16-18K. On the other hand, a 50 basis point rate hike could result in a substantial bounce – likely to the $24K resistance levels.”