Hola folks!
The past week has been a roller coaster for the crypto market as a combination of factors such as the unfavorable US job data and the increasing odds of Kamala Harris winning the US presidential elections pushed the crypto market over the edge, leading to major losses.
Read the newsletter to learn more about the broader crypto market downturn and how the developments of the past week might impact crypto prices in the coming days.
It was a week to forget for investors, as the crypto market faced a "major reset" event and came under severe selling pressure, wiping out a staggering half a trillion in market cap last week, closing below $1.95trn. What's even more remarkable is the speed of the crash, as just at the beginning of last week BTC was trading close to $70k after the euphoria of the Bitcoin Conference, only to be ravaged by the "perfect storm" of events leading to erosion of 25% in prices, with BTC trading around $52k levels with market cap just north of $1trn. However, the largest crypto asset has continued to gain market cap dominance to levels last seen in April 2021 (54%) vis-a-vis the broader altcoin universe, as investors turn "risk-off".
The rout in ETH prices was even sharper, falling 30% or losing almost 1/3rd in value last week, and trading just above $2.3k. Across the board, it was a sea of red as most tokens lost 1/4th to 1/3rd of their value last week and investors are left with more uncertainty in the near future.
But what caused the markets to turn so toxic in such a short period? Will the "perfect storm" have several factors at play and will be impacting all asset classes in this major macro reset:
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The impending US recession: The US employment data was a shocker as the economy slowed down considerably, resulting in much fewer new jobs created than expected. Further, even the downward revision in actual data from the previous months confirmed that the slowdown is already gaining momentum and the Fed will have to respond more aggressively. Within a week's timeframe, the expectations are now for two 50 bps rate cuts this year and this doesn't bode well for investor trust on the Fed's direction.
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The end of the JPY Carry Trade: The Bank of Japan surprised all by raising interest rates by 25bps, bringing an end to the decades-old lucrative JPY carry trade, where Japanese investors would raise funds cheaply in local JPY and buy global assets with higher returns, while also protecting gains compared to weaker JPY. Now the situation reverses, as the interest rate hike led to an appreciation of JPY and has left no choice for investors but to unwind the trade, by selling global assets and plunging prices across the board.
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The JUMP unwind: Although just a rumor, there's ample on-chain evidence to suggest that the blowout of the JPY Carry Trade has caused a severe shock for Jump Trading, one of the major crypto trading desks. To maintain liquidity, they have force sold almost $500m worth of ETH over the weekend and converted most of their holding into stablecoins.
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The Democratic comeback in US elections: As per Polymarket, there has been a surge in the chances of Democrats making a comeback in the US Elections on the back of increasing popularity of replaced candidate Kamala Harris vs Donald Trump. The markets were extremely bullish on a Trump victory and his pro-crypto stance but now there's more uncertainty ahead.
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Near-term uncertainty: With global equities coming under severe selling pressure, the supposed "risk-off" investor is already suffering from "wealth erosion," making them unlikely to take riskier bets like crypto in the near future. However, the biggest threat to markets is coming from the Middle East as there has been an escalation in the Iran-Israel conflict after recent strikes on Hezbollah leaders by Israel. If Iran retaliates, the entire region will become more involved, and global oil trade might be affected.
Silver Lining: Even amid these dark clouds, two positive developments from last week included the first large US bank Morgan Stanley allowing its Private Wealth clients to have exposure to Spot BTC ETFs. Secondly, even though external factors remain pessimistic, Bitcoin's internal metric of network strength, the hash rate, and mining difficulty levels remain at all-time highs, which have previously been leading indicators of price gains. These are long-term positives, but in the short run, investors should remain cautious and not indulge in leveraged positions, waiting for volatility to subside.
The crypto universe was a sea of red with almost all major cryptos trading in the red. Bitcoin tumbled by 24% in the last 7 days, whereas Ether was down 32% in the past week.
Solana’s SOL also came under massive selling pressure as it lost 37% of its value in the past week.
All top ten cryptos by market cap barring the stablecoins lost value last week owing to the risk-off market sentiment.
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BTC $52,719 ⏬ 24.08%
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ETH $2,326 ⏬ 31.39%
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SOL $121.28 ⏬ 36.69%
(All data here is as of 3.00 p.m., 5 August 2024)
Before we conclude, here’s a quick look at some important news from around the crypto world.
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US regulators have given final approval for spot exchange-traded funds that hold Ethereum’s ether (ETH), giving Americans access to a second major cryptocurrency via the easy-to-trade vehicles. Read more here.
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Raipur, the capital of Chhattisgarh, has started bringing its real estate records onto the blockchain with the help of Airchains, which builds blockchain-based bespoke privacy models through its use of zero-knowledge fully homomorphic encryption (zk-FHE). The Raipur Municipal Corporation administers the area issuing more than 8,000 building permits, work orders, and colony development permissions annually. Read more here.
That’s it for now. Thanks for sticking around.
See you later, folks! 👋
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