As I write this, the US stock market in NY is just opening. The S&P is down 4% at the open. That’s in the aftermath of what was a disastrous weekend for markets worldwide. So what is going on? And will it continue?
We look into what’s going on with the crypto (and other markets) bloodbath. What exactly happened this weekend?
The Japanese Yen Carry Trade
Risk assets like stocks and crypto need liquidity or money in the system for people to buy. A huge source of liquidity in recent markets has been the Japanese Yen carry trade. It goes like this:
- The yen pays zero interest to Japanese and yen holders
- Borrowing costs are also super low for the same reason
- People borrow yen for at or near 0 and invest it mostly in US assets but other risk assets like commodities (oil, sugar), and crypto
- People earn interest in USD or in asset appreciation, sell, pay back the yen loan, and keep the profits.
So what does the yen have to do with Bitcoin or AMZN stock?
Japanese stocks (Nikkei 225) plunging over 25% from their highs to 30,900 support. If this support can hold, then could be a nice bounce coming
Jap stocks are crashing for two reasons
1) BOJ hiking interest rates to control inflation and expected to continue hiking -> market… pic.twitter.com/m4NCHIpLTh— Adam Khoo (@adamkhootrader) August 5, 2024
The BOJ or Central Bank of Japan raised interest rates from zero to 0.25%. It’s the 2nd time in a week.
Now yen holders can start to earn something on their yen. That’s one issue. But what people are freaking out over is whether this is the beginning of a new trend of higher rates that will make the carry trade and all its liquidity no longer profitable.
The effect on Nikkei stocks is obvious. The Nikkei 225 index in Japan dropped 5.8% on Friday and another 12% on Monday. Both are the 2 biggest drops since the 1987 global stock market crash.
Like I said, people are freaked out. The yen increased in value by almost 5% against the dollar, too.
But the real story here is the liquidity being taken out of the “risk” market. And we know what happens when liquidity is taken out of crypto.
Jump Crypto Exiting? Or Liquidated?
Another big piece of news affecting our markets is Jump Crypto. They’ve unloaded, according to this tweet below, over $500 million worth of ETH.
What happened in Crypto in the last 12h:
• $370 million liquidated from the crypto market in the past 1 hour.
• Biggest 2-day drop for the Nikkei in history, surpassing Black Monday.
• Jump Trading has likely been offloading $ETH, unstaking $500M worth over the past 2… pic.twitter.com/ppxYYq232U
— Layergg (@layerggofficial) August 5, 2024
Even if the number is smaller than that. They are a big player doing a ton of selling so of course that means more downside pressure on the market.
Now why they chose to get out on a weekend with thin trading and negative sentiment, no one knows. And that’s where the speculation comes in that they were liquidated.
Jump liquidating their crypto book into thin markets on a summer Sunday afternoon, perfectly sums up why their crypto operation is such a mess.
For a shop that’s spun out so many smart builders in this space, the operation always seems like a clusterfuck. https://t.co/jCTdtGUFYR
— Adam Cochran (adamscochran.eth) (@adamscochran) August 4, 2024
Then again, there are some that say this is a positive both short and long term like ETH maxi, Sassal.eth. He says they are “a parasite on crypto for years” and that we are better off without them.
Still, more selling is more selling.
What Do You Do Moving Forward?
No one knows what will happen in markets from here. But all signs are that this is temporary. If you think long-term enough…..
So there are some specific things you can do from here:
- Review your portfolio, especially the fundamentals
- Buy Bitcoin (this is me telling you, not Altcoin Buzz)
- Buy if the fundamentals of your favorite projects hasn’t really changed.
Many projects you had in your portfolio a week ago are 0% different than what they are now. The only difference is the price is down. All the fundamentals and things you liked about the project before are still there. Its mainnet or token utility or total addressable market, or growth in daily average users (DAU) is all the same.
So is it really a worse investment now because the whole market is declining? Of course not. In fact, if you like a project at 50c, you should like it even more at 35c if nothing has changed. Yes, Polygon, I’m looking at you.
If you have some dry powder, then it’s a good time to go discount hunting. While some believe this horrific weekend will be an end to the bull market and there will be no alt season, we think more liquidity will come into the market and things will turn bullish once again.
More Liquidity Is Coming Soon
Legendary investor Bill Ackman says it quite plainly about the US Federal Reserve. He says they were too slow to raise rates and are now too slow to lower them. And many others agree. Lower interest rates mean more liquidity and cheaper borrowing costs for $$. Usually, that means the crypto market advances. This tweet says it better than I do.
More liquidity == Higher crypto prices. Don’t let your emotions control your investments.
Sharing these again.
Exit 2026 or accumulate to 2035 exit. Both are saying the same thing. Your job is to accumulate and stick to your plan.
Crypto correlates exactly to liquidity, its a liquidity sponge. We have signs of global easing and money supply increasing but these… pic.twitter.com/ZfJVEo3g5G
— MartyParty (@martypartymusic) August 4, 2024
Disclaimer
The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment and informational purposes only. Any information or strategies are thoughts and opinions relevant to accepted levels of risk tolerance of the writer/reviewers, and their risk tolerance may be different from yours.
We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments, so please do your due diligence.
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