As global financial markets experienced a significant downturn, with both traditional equities and cryptocurrencies suffering substantial losses, industry experts point to a complex web of interconnected factors driving the crisis rather than it being a sudden anomaly.
Wall Street saw its worst day in nearly two years, and Japan’s Nikkei 225 index suffered its largest single-day point drop in history. Meanwhile, Bitcoin’s drop below $50,000 sent panic through the cryptocurrency market.
Here’s what industry experts are saying about the factors behind this market turmoil.
A complex crisis
Richard Teng, CEO, Binance
Richard Teng, CEO of cryptocurrency exchange Binance, explains that a mix of factors drives the market crash, extending beyond the immediate fluctuations in stock and cryptocurrency prices.
“The recent sharp drop in the prices of both cryptocurrencies and equities over the past few days can be attributed to a mix of macroeconomic and crypto-specific factors, though the former seem to be more influential at the moment.”
According to Teng, the heightened fears of a US recession, alongside other economic pressures, have played a critical role in this market downturn. A US
labour market report showed unemployment rising to 4.3 per cent.
“As the election approaches, we are likely to witness market impacts in both directions as candidates clarify their stances on cryptocurrencies.
“In the crypto market, the summer months have historically been slower than other months of the year, with consistently smaller returns. It is possible that these seasonal dynamics are also coming into play here.”
Bitcoin decline
Gracy Chen, CEO, Bitget
Gracy Chen, CEO of crypto exchange Bitget, also suggests “there are multiple reasons for the flash crash and bearish behaviour” in the market, which saw major mainstream crypto assets fall sharply, with Ethereum down by over 20 per cent and Bitcoin by 11 per cent within 24 hours. The panic index VXX also soared 27 per cent in a single day.
“The global economy is alerted with geopolitical tensions and the US economy is facing recession pressure,” commented Chen. “The US stock market has fallen for three consecutive trading days, while the Japanese stock market has been in a circuit-breaker for two consecutive trading days.
“The emotional impact of large institutions’ market actions also play a role, with Berkshire Hathaway cash pile surging after selling Apple and Bank of America stocks in the past 12 trading days. Warren Buffett sold stocks and now holds cash in large quantities, affecting the overall sentiment of the market. On the crypto front, Jump Crypto, a leading market maker in the crypto market, sold ETH, causing the price to fall sharply after analysts bet downfall post ETF approvals.”
For Chen, before the market forms a true bullish drive, it needs to experience a sharp decline to reduce the long positions of the contract in order to reduce the selling pressure for future rises.
“This is a key factor in the rapid rise of the market, observers can continue to pay attention to changes in the macro market including the panic index indicators. At present, the core key to affecting the market trend is the sentiment index. If VXX starts to fall, it means that the panic sentiment has eased.”
Impact on the technology sector and fintech
The market crash has impacted the technology sector, particularly companies heavily invested in artificial intelligence and fintech.
Ryta Zasiekina, founder, CONCRYT
Ryta Zasiekina, founder of fintech company CONCRYT, expresses concern over the steep declines in tech stocks.
“The recent crash in the global stock market, particularly the sharp declines in tech stocks heavily invested in AI, is concerning for the fintech sector,” she remarks.
Zasiekina points out that the dramatic downturn in Japan’s Nikkei 225 index is also a stark reminder of how interconnected global markets have become.
“This dramatic downturn is driven by fears of a US economic slowdown, which is sending shock waves through global markets,” she explains.
The fintech industry, reliant on continuous innovation and investment, could face significant challenges if the current market instability persists.
“Tech stocks are suffering from a combination of mixed earnings reports and growing scepticism among some investors about the promises of artificial intelligence. The emphasis is now on the contagion effect of this global market turbulence, driven by fears of a hard landing in the US and a severe meltdown in Tokyo’s markets, which seem to be self-perpetuating.
“For the fintech industry, this prolonged stock market rout could mean less investment as major tech firms may pause new R&D efforts, cut jobs, and halt investments in startups and scale-ups. This period of uncertainty underscores the need for fintech companies to be agile and resilient, navigating these turbulent times with strategic planning and innovation.”
Resilience despite downturn
Despite the panic, some experts see signs of resilience and potential recovery in the market.
Shivam Thakral, CEO, BuyuCoin
While Shivam Thakral, CEO of India crypto exchange BuyUcoin, also attributes the downturn to a combination of factors, including interest rate hikes, geopolitical tensions, and broader economic concerns, he remains hopeful about Bitcoin’s long-term potential.
“The recent decline in Bitcoin’s price is due to a hike in interest rates by central banks around the world, geo-political tension in the Middle East, and concerns related to the US economy, which have affected investor sentiment. However, Bitcoin’s strong market presence reflects that there is potential for recovery and growth as market conditions stabilise.”
Stefan Kimmel, CEO, M2
Stefan Kimmel, CEO of UAE-based digital assets exchange M2, echoes this sentiment, pointing out that while the short-term outlook is volatile, the longer-term prospects remain positive.
“This short-term drawdown sits in contrast to the longer-term market outlook,” he says. “One fuelled by factors including outlooks of lower US interest rates, continued inflows into ETFs, and an increasingly favourable political environment – particularly in the US.
“While markets are recovering, and the worst appears to be behind, investors should be prepared for continued volatility in the short term and set up their portfolios accordingly in line with their own investment strategies and risk appetite.”
Broader context
Ed Margot, head of client investment strategy, FE fundinfo,
Adding another layer of perspective, Ed Margot, head of client investment strategy at financial data company FE fundinfo, notes that the recent market sell-off may not fully align with broader economic indicators. “The recent sell-off didn’t seem to back up the data overview we have of the economy,” Margot observes.
He highlights that while some economic statistics and company performances have been weak, including disappointing business surveys and a slowdown in job growth, these factors alone don’t suggest an immediate recession.
“Our data show a different view compared to the small cluster of weak economic news,” says Margot. “We would conclude the US is not in a recession. We think it is slowing but we haven’t seen data which would make us change our view that there has been a change in the pace of the slowdown.”
Sam North, market analyst, eToro
Sam North, market analyst at eToro, also remains optimistic about the medium-term outlook for stocks.
He points out that despite recent volatility, earnings growth has been solid, with S&P 500 companies reporting an 11.5 per cent annual increase.
North also outlines that the Federal Reserve has room to manoeuvre if economic conditions worsen, reinforcing his belief that “stocks will continue to rise in the medium term, though the path might be bumpier”.
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