Disclaimer: This post contains thoughts on crypto, a volatile and risky asset class. It is not investment advice, and you should do your own research. All information is for educational purposes only. Please don’t take risks with money you’re not willing to lose.

Rounding off the anticipated summer chop, August was best served away from the charts. In just the first week, an influx of bearish macro news led to the first global losses rivaling those of our beloved pandemic-era. The remainder of the month was spent ranging, with leverage traders getting wiped on virtually every move while CT doomposted the death of it’s own industry.

By the Numbers

August 4, 2024 - Crypto front runs weekend news

• BTC: $60k to $52k (-13.33%)

• ETH: $2.9k to $2.2k (-24.14%)

• SOL: $145 to $115 (-20.69%)

• total crypto market capitalization falls by $367B

• derivatives markets see $1.13B in liquidations ($936m in longs)

August 5, 2024 - Equities / indices follow on weekly open

• S&P 500 drops 3% (worst day in nearly two years)

• Dow Jones reels 2.6%

• Nasdaq slides 3.4% (caps off worst three-week stretch since Sept’ 22)

• Japan’s Nikkei 225 loses 12%

• VIX reaches it’s third-highest level ever (behind Covid / 2008)

• global stock market wipes $6.4T

US Economy Slows

Per my July recap, the Federal Open Market Committee announced that it would be keeping federal interest rates unchanged while also hinting at possible cuts in September. Although this was somewhat expected, other economic indicators notably worsened. Job growth, for instance, came in more than 35% under the expected target - marking one of the weakest prints since Covid-19. Additionally, the unemployment rate rose above the anticipated 4.1% to 4.3%. While poor economic news generally garners positive reactions with increasing odds of Federal Reserve intervention, market participants were more cautious this time around - perhaps in part due to the looming uncertainty around the Iran-Israel conflict.

Kamala Odds Spike

More closely correlated with crypto’s selloff, the political landscape suddenly shifted in favor of Kamala Harris. Since becoming the official Democratic nomination, her odds of winning the presidency rose from 19% to 54% - peaking in mid August and surpassing Joe Biden’s peak odds of 45%.

Key to an administration that has leaned into aggressive enforcement, a Kamala regime seemingly veers unfavorable for crypto-natives. Exemplified by Gary Gensler’s legal onslaught, Democratic policy has largely been a headache for US-based crypto startups. In fact, only 7% of the market capitalization of blockchain protocols is in companies domiciled in the US. Although Kamala has more recently taken a pro-business stance - launching the Crypto for Harris campaign and easing lawsuits on companies like Coinbase - some are skeptical. As Donald Trump has already aligned himself with our industry, it may just be an empty-gestured attempt to win back a niche voting demographic.

Japanese Markets Tumble

In tandem with the US Federal Reserve’s bearish meeting, Japan’s economy began to slip as the Yen ‘carry trade’ unraveled.

For example, a trader could borrow the Yen (or any other currency with a low interest rate), and then buy higher-yielding currencies (such as the Dollar) to invest in their native bonds, funds, and even stocks. These trades happen often, but are most effective between currencies that remain relatively stable. Moreover, profits are usually slim unless highly levered (i.e. borrowing Yen to buy AAPL).

However, in early August Japan’s central bank raised rates into positive territory for the first time in 17 years, with the Yen subsequently surging in strength against the US Dollar. With billions of dollars in Yen-funded loans between banks, pension funds and other investors, a rapidly narrowing yield gap on an already slim margin meant cutting massive losses (and incurring potential forced liquidations on other assets). As a result, the Nikkei 225 had it’s worst day since the 1987 Black Monday sell-offs while also plunging global markets as mentioned above.

Some Thoughts

With the above events contributing to some of the cycle’s more meaningful drawdowns for myself and participants alike, I spent the majority of August a step away from the madness. If you have a thesis, temporary and painful price action will only try to convince you otherwise. Looking at charts and feeding into timeline sentiment quickly exacerbates this. I rarely trade the chop so it nonetheless felt fitting to enjoy a somewhat normally paced life again.

With that said, I do believe most of the negative catalysts are behind us and a return to euphoria is inevitable. After all, it’s been nearly six months since previous all-time highs and summer markets are generally sleepy anyways. The future holds:

• improving jobs report + rate cuts

• former Binance CEO prison release (yes, it’s a catalyst)

• presidential election market propagation + crypto narratives

• FTX customer repayments (~$16B)

• global liquidity cycle ramping up

Q4 and Q1 2025 should be fun.

Portfolio Update

My positions remain unchanged in accordance with my sabbatical. Still short-term bearish, medium-long term bullish. It’s almost time, stick in there :)