Bitcoin Falls Below $58,000 As The Activation Of Sahm Rule Conditions Trigger Recession Chatter

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With global liquidity - a term that encompasses the M2 money supply of all major economies - recently hitting a new all-time high of $95 trillion, one would ordinarily expect Bitcoin to exhibit phenomenal strength, given its high sensitivity to this key metric. Yet, the world's leading cryptocurrency is currently moving in the opposite direction. The reason: growing probability of a recession.

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Sahm Rule

This Friday, the Non-Farm Payroll report upended markets throughout the globe after it disclosed that the rate of job additions in the US in July fell far short of analysts' consensus expectations.

Critically, the report also formally triggered the so-called Sahm Rule conditions, which posit that a recession materializes in the US when the 3-month moving average of the national unemployment rate (U3) moves 0.5 percent above the minimum of such three-month averages over the past twelve months.

This then led to a violent repricing of the interest rate expectations, with the market now expecting a full percentage cut in the Federal Reserve's benchmark interest rate between September and early 2025.

Bitcoin, Recession, And Liquidity

Given the recent increase in global liquidity measures, how does one go about explaining Bitcoin's recent weakness? Well, the answer is quite simple: at the moment, the market is not discounting the liquidity bonanza that is sure to follow the formal onset of a recession in the US; rather, it is focusing on the recession itself and the demand destruction that such an economic contraction is sure to unleash.

The above chart illustrates Bitcoin's 30-day correlation with gold, S&P 500 index, and the Nasdaq Composite. Note that Bitcoin was positively correlated with the US equity indexes