Bitcoin has “purged” market speculators as liquidations reach $365 million, new research says.

In the latest edition of its weekly newsletter, “The Week Onchain,” crypto analytics firm Glassnode confirmed a “statistically significant capitulation.”

Bitcoin short-term holders (STHs) have come under intense pressure thanks to this week’s BTC price crash.

As Cointelegraph reported, at one point, these newcomer entities sold $850 million of BTC at a loss. Now, new findings from Glassnode show the extent to which overleveraged players have been removed from the market.

STH entities are those hodling a given unit of BTC for 155 days or less, while their counterparts, the long-term holders (LTHs), hodl for more than 155 days.

STHs tend to be far more sensitive to market shocks than LTHs, and this week’s trip to $49,500 was no exception.

“Short-Term Holders are currently holding the largest unrealized loss since the FTX implosion, which again highlights a point of serious investor stress imposed by current market conditions,” Glassnode summarized.

Just 7% of STH holdings currently sit in profit, a number that echoes the BTC price dip below $30,000, which began a year ago.

“This is also more than -1 standard deviation below the long-term average for this metric, and suggests a notable degree of financial stress amongst recent buyers,” the research added.

Glassnode likewise confirmed that STHs are “dominating” onchain losses, with just 3% attributable to the LTH cohort.

Various other metrics provided similar insights into the speculator wipeout, with the research characterizing the broader market reaction to the price declines as “one of panic and fear.”

The STH spent output profit ratio (SOPR) metric, for instance, recorded lows only surpassed on 70 days in Bitcoin’s history.

“Short-Term Holder SOPR has also reached staggering depths, as new investors locked in a -10% loss on average,” “The Week Onchain” commented.

SOPR has not gone unnoticed elsewhere. In one of its Quicktake blog posts on Aug. 7, onchain analytics platform CryptoQuant drew similar conclusions, suggesting that current prices could mark a potential buying opportunity.

“We know that the metric last reached the 0.95 level in December 2022, which initiated a bull run,” contributing analyst XBTManager noted.

“During bull trends, the 0.95-0.90 range is usually a good buying level. Currently, the metric is at 0.90.”

Concluding, Glassnode called August an “exceptionally eventful month.”

“Bitcoin recorded its largest drawdown (-32%) from the ATH of the cycle, and precipitated a statistically significant capitulation amongst Short-Term Holders. Futures liquidations fuelled the fire, with over $365m worth of contracts forced closed, and creating a 3 standard deviation reduction in open interest,” it wrote.

“This has led to a meaningful flush out of leverage, and paves the way for on-chain and spot market data to be of key importance for analysts assessing the recovery in the weeks to come.”

July saw another strong expansion of business activity in the service sector, according to S&P Global's PMI surveys, which over the past three months has enjoyed its best growth spell for two years.

The robust service sector growth contrasts with the deteriorating picture seen in the manufacturing sector in July, where output came close to stalling.

While manufacturers are reporting reduced demand for goods, this in part reflected a further switching of spending from consumers towards services such as travel and recreation. However, healthcare and financial services are also reporting buoyant growth, fueling a widening divergence between the manufacturing and service economies in recent months.

Thanks to the relatively larger size of the service sector, the July PMI surveys are indicative of the economy continuing to grow at the start of the third quarter at a rate comparable to GDP rising at a solid annualized 2.2% pace. While that is below the 2.8% recorded in the second quarter, according to official first estimates, it still represents a healthy upturn and compares favorably with recent signs of stalling growth in the eurozone during July.

Although the headline S&P Global US PMI Composite Output Index fell for a second month from 54.8 in June to 54.3 in July, the latest reading was the third highest recorded over the past 14 months, and is marginally above the survey's long-run average of 54.2.

A further cooling of selling price inflation in the service sector meanwhile brings encouraging news for the Fed. Average prices charges rose at the slowest rate since January, hinting that inflation rates are moderating again after ticking higher in the spring. The latest rise was in fact the second-lowest since June 2020.

Combined with a near-stalling of price increases in the manufacturing sector, the softer rise signaled in the service sector survey data point to average prices charged for goods and services rising at a slower rate which is indicative of consumer price inflation moving closer to their 2% target.

If there is a blot on the inflation landscape it comes from the survey data on firms' costs. In particular, input cost inflation in the service sector, which is dominated by wages and salaries, rose at an increased rate in July, rising at a pace well above the pre-pandemic average. Similarly, manufacturing input costs also rose at a solid pace, albeit in the case of manufacturing the rate of increase was slightly below the pre-pandemic average. Policymakers will likely be eager to see these cost pressures soften before being confident of inflation falling sustainably to target.

The KPMG and REC, UK Report on Jobs survey,compiled by S&P Global, indicated a decline in permanent staff placements again in July, extending the current downturn to nearly two years. Recruitment consultants reported an increased volume of redundancies at clients.Temp billings also fell, albeit fractionally, as firms chose not to renew or replace expiring temporary contracts.

Nonetheless, permanent salaries continued to increase as firms remained willing to raise starting pay for suitable candidates, which in some cases remained in short supply. However, inflation fell slightly and was below trend.Moreover, as demand for staff fell, temp pay rates rose only slightly and to the weakest degree for nearly three-and-a-half years.

The report is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 UK recruitment and employment consultancies.

The KPMG/REC Report on Jobs data showed that permanent staff appointments continued to fall in July, albeit at a slower rate. A reduced number of vacancies and subdued demand for staff was reported to have led to the decline in placements.There was also a reduction in temp billings in July, although the rate of contraction was marginal.There was evidence of firms choosing not to replace workers whose contracts had expired.

Despite making fewer appointments in July, companies continued to raise permanent staff salaries. The rate of inflation was again marked, though a little softer than in June and below the survey average. Panellists noted that firms were willing to raise pay to attract workers amid a dearth of suitable candidates. Temp pay also increased, although the rate of inflation was marginal and the weakest for nearly three-and-a- half years. Higher temp staff availability weighed on pay rates.

Vacancy numbers in the UK labour market continued to decline during July extending the current period of contraction to nine months. The pace of reduction was however marginal and slower than in June. Moreover, there was some divergence between permanent and temp staff demand. Whereas the latter recorded slight growth, a modest contraction was seen for permanent workers.

The availability of candidates for both permanent and temporary positions continued to rise in July.Rates of growth were softer than in June, easing in each instance to the lowest for five months.Higher staff availability reflected a combination of increased redundancies at firms and a reduction in demand.

Latest data showed that permanent placements fell most noticeably in the South of England. In contrast, a modest increase in placements was seen in London.

Temp billings rose in the Midlands and the North of England but fell in London and the South of England.

Half of the sectors covered by the survey showed growth in permanent staff vacancies during July.The strongest increase was for Nursing & Medical Care staff, followed by Engineering. The steepest decline in permanent staff was for IT & Computing.

Temp vacancies were up across seven sub- categories in July, led by Blue Collar and Engineering. The steepest decline in temp vacancies was seen for Executive & Professional workers.

The seasonally adjusted Global PMI New Export Orders Index, sponsored by JPMorgan and compiled by S&P Global, posted 49.7 in July, which was unchanged from June. The latest reading signalled that trade conditions deteriorated for a second successive month in July, albeit only marginally.

Excluding the improvements in April and May, export orders would have fallen continuously since March 2022. That said, the latest decline was partially underpinned by disruptions in supply chains which we will continue to monitor via the PMI Supplier Delivery Times Index for goods.

Manufacturing new export orders declined for a second successive month in July, attributed largely to shipping delays which intensified from June. Globally, manufacturing sector delivery times lengthened at the fastest pace since January, with anecdotal report from companies citing shipping delays as the cause for longer supplier delivery times spiked in the latest survey period. Furthermore, comments from panellists often pointed to disruptions in the Red Sea region as a key source for the delays globally. This clearly affected export demand, with the PMI Comment Tracker data showing a sharp rise in instances where falling goods exports were linked to shipping delays in July. Therefore, while weakness in underlying demand conditions partially dampened export orders, it was also the rise in shipping constraints that played a part, which we will be monitoring in the coming months. Broadly, sentiment in the manufacturing sector improved in July with the Future Output Index having risen from the eight-month low in June, which was a positive sign.

Meanwhile service sector export business remained in expansion, though the rate of growth eased for a third straight month to a level that was modest and the slowest since March. While we see most emerging markets and major developed economies, such as the US and UK, recording higher services export business, weakness in export conditions permeated a few key regions such as the eurozone and Japan. The trend of slowing export business expansion also contrasted with broader services new business which rose at an accelerated rate across the globe in July.

More detailed PMI data revealed four of the top five sectors that led the expansion in export business were all service sectors, namely the insurance, commercial & professional services, non-bank ('other') financials, industrial services and transportation. On the other hand, the real estate sector was the worst performing sector in July, followed closely by manufacturing companies including forestry & paper producers, resource companies and auto & auto part makers.

By region, the downturn in trade conditions was limited to developed markets, though the rate of reduction remained modest and unchanged from June. While developed market service sector trade conditions stabilised following two successive months of decline, manufacturing export orders remained in contraction and at a more pronounced rate in July.

Divergence in sector trends was also observed for emerging markets, though taking place in expansion territory in this case. A slight acceleration in overall export business growth for emerging markets was supported by faster manufacturing export orders expansion while services export business rose at the softest pace in four months. Services export business nevertheless continued to increase at a faster pace compared to manufacturing.

July Manufacturing PMI data outlined that the global expansion in goods trade was limited mainly to emerging market economies again among the top 10 trading nations. India retained the top spot for the seventeenth month running, further with the rate of export order expansion accelerating to the second-strongest in over 13 years.

Following India was Brazil, which recorded a solid expansion, the fastest since December 2021. Brazilian manufacturers indicated that the depreciation of the domestic currency helped to lift their competitiveness globally in July, driving the rise in export orders from Asia to the US. More muted growth was meanwhile observed in South Korea and Mainland China.

On the other hand, the EU and Canada continued to drive the downturn in export conditions among the top 10 trading nations with marked reductions in export orders in the manufacturing sector. According to the S&P Global Canada Manufacturing PMI, export orders fell at the most pronounced pace in over four years with market uncertainty, inflation and geopolitical tensions undermining demand.

Meanwhile Japan also recorded further reductions in goods export orders as weakness in demand permeated both the domestic and export markets in July. However, the rate of reduction eased from June. This was while the UK and US recorded only marginal rates of manufacturing export order contraction in the latest survey period.

Last week’s disappointing U.S. July jobs report sent ripples through global markets. Particularly large moves were seen in Japanese markets, which dropped 6% on Friday (8/2) and another 12% on Monday (8/5), marking the worst daily sell-off since 1987. On Tuesday, Japanese equities rebounded 10%, the best day since 2008. Equally staggering are the recent movements in the Japanese Yen which has strengthened 11% since June, after being down 12% on the year.

What’s behind this volatility in Japanese markets? A mixture of changing fundamentals, plus powerful technical factors, have exacerbated moves in previously big winners, including Japanese equities. However, the long-term case for Japanese equities has not changed, especially around better earnings growth and corporate governance changes, and valuations have improved as the price-to-earnings multiple moved down to 12x, below its 10-year average.

Global markets, including Japan, are adjusting to potentially softer growth in the U.S. and larger Fed rate cuts, while the Bank of Japan ramps up its monetary policy normalization by raising rates. However, the magnitude of these market moves suggests there is more going on beneath the surface than fundamentals alone. Carry trades, or borrowing in a less expensive currency like the Yen to invest elsewhere, like Japanese equities or megacap tech stocks in U.S., became very popular over the past 18 months.

As Japanese interest rates moved up and Yen volatility surged, these carry trades began to unwind rapidly. Investors unwinding carry trades have to sell investments to cover JPY short positions, contributing to further Yen strength. In fact, this has been occurring in other markets with cheap funding currencies (like the Swiss Franc which has appreciated by 5% since the end of June) and in other previous high-flyer markets (like “Magnificent 7” stocks and Mexican and Brazilian local currency bonds).

Narrowing U.S. vs. Japan interest rate differentials: The difference between the 10-year U.S. Treasury yield and the 10-year Japan government bond yield has narrowed from 3.43% in late June to 2.99% now, strengthening the yen. Softer U.S. economic data caused the U.S. 10-year Treasury yield to drop to 3.78%, its lowest level since July 2023, while the Bank of Japan has been tightening monetary policy, causing yields to increase. Historically, these interest rate differentials have been closely correlated to Yen moves versus the U.S. dollar.

Higher currency volatility: The implied USD/JPY volatility rose, with the 1-month implied exchange rate volatility rising to 15.6%, much higher than the year-to-date average of 8.9% and 10-year average of 8.6%. This decreases the attractiveness of the carry trade.

Higher funding costs in Japan: With its rate hike last week, the Bank of Japan has brought short-term rates in Japan to 0.25%, and 10-year yields have moved up to 1.10% in July. This increases the funding cost for carry trades.

Investors are likely wondering when this volatility may subside. Given the popularity of this trade, we may yet see some more volatility related to it. However, for long-term investors, it is key to realize that the fundamental case for investing in Japan has not changed. After a long malaise, Japan’s economy is now seeing positive nominal growth, which should lead to better revenue growth. 2024 earnings growth is still expected to be 13% y/y in local currency terms. The Yen’s appreciation may shave off a bit from earnings expectations; however, corporate governance reforms should continue to inject more long-term dynamism into Japanese companies. On the positive side, multiples have contracted, moving from 15x to 12x, below the 10-year average.

The U.S. nonfarm payrolls data for July was unsatisfying. A set of weak economic data triggered the market concern of a recession. Besides, the ongoing appreciation of the Japanese yen has led to the unwinding of yen carry trades, causing severe turbulence in the financial markets and a widespread decline in global stock markets. Investors are urgently seeking safe-haven assets. However, in this scenario, gold, traditionally considered a safe-haven asset, has not become the market's preferred choice but collapsed after panic selling.

Inexplicably, Iran vowed to retaliate against Israel after the assassination of a Hamas leader, sparking fears of a broader war in the Middle East. Geopolitical tensions heated up sharply. Yet, this did not shore up gold prices.

In fact, safe-haven buying of gold tends to exhibit fatigue, meaning that even worse news is needed after bad news to drive gold prices higher. Iran's hesitation between retaliation and restraint, and the uncertainty of the timing of any strike against Israel, have somewhat alleviated concerns over geopolitical tensions.

It is clear that the recent severe turbulence in the financial markets has indirectly triggered a liquidity crisis. This liquidity shock has caused a decline in nearly all financial assets, including gold. The non-farm payroll data seems to have shifted the market overnight from "rate cut trades" to "recession trades."

As an asset that does not generate cash flow, gold's price movements are entirely dependent on market supply and demand, which can make investors cautious during times of uncertainty. While the poor performance of gold prices may seem surprising, it is reasonable as all assets are being sold off. The liquidity crisis forces investors to liquidate or reduce their gold holdings to obtain liquidity to cover losses in other assets or meet margin calls. Additionally, when financial markets seek hedging instruments, they may establish short positions to hedge against previous long positions, further depressing gold prices.

Moreover, heightened expectations of rate cuts have made gold-long trades highly crowded, increasing liquidity risk. When many profit-takers try to sell assets simultaneously, they struggle to find enough buyers, turning it into a race to sell first, causing sharp price declines.

Another reason for gold's decline is the rise in the U.S. dollar index and Treasury yields. This highlights that during the extreme market panic, the preference for cash often prevails. From a trading perspective, the market typically buys gold during pessimistic times and sells it during desperate times (along with other non-cash assets), showcasing the dual nature of gold's safe-haven properties.

Looking back over the past forty years, global risk events like wars and financial crises have not had a simple and direct impact on gold prices. During the 2008 financial crisis, U.S. stocks were down almost all year, and gold also plummeted by over 30%. It was the massive rush for liquidity that drove this trend.

Looking back, risk aversion caused by unexpected events can only cause short-term fluctuations in the price of gold. The gold's medium- to long-term bullish market is always formed in an environment with low interest rates and a weak U.S. dollar.

From a fundamental point of view, although the weak economic data has increased the risk of a recession, the market is clearly overreacting. The U.S. economy may slow down, but a recession is not very likely. A single data point cannot rule out the influence of "coincidental" or "temporary" factors. While a Fed rate cut is expected, it's unlikely to necessitate an urgent and significant reduction.

The ongoing decline in U.S. inflation and the rising unemployment rate are paving the way for a Fed rate cut. Historically, both relative and absolute returns on gold have been substantial around Fed rate cuts. If the Fed proceeds with a rate cut, the gold market may gradually return to its traditional pricing logic, where gold prices and the real interest rate of the U.S. dollar are inversely correlated, with lower rates providing long-term support for gold.

Furthermore, from a geopolitical perspective, the intensifying global geopolitical tensions and the growing demand for diversified reserve assets have fueled continued gold purchases by central banks worldwide. And the rising uncertainty around the U.S. elections is also boosting safe-haven demand for gold.

The recent sharp correction in gold may have been somewhat overdone. Once the panic subsides, we might see a renewed wave of buying. This is reminiscent of the panic-driven selloff in March 2020 during the onset of the COVID-19 pandemic. Once the liquidity crisis began to ease, gold rebounded quickly, supported by monetary easing, hitting a bottom and continuing its upward trend.

As for whether gold can reach a new all-time high, it may just be a matter of time.