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Bank of Japan Shakes Up Yen Carry Trade and Crypto Markets
The crypto market lost 15% of its value over a weekend, with the Bank of Japan playing a major role. On August 5, Bitcoin and Ethereum prices plunged by 18% and 26%, respectively, largely due to traders’ reliance on leveraged trading, magnifying market risks. The catalyst was the Bank of Japan's rate hike on July 31, which caused the yen to surge in value, making yen-denominated loans more expensive. This led to widespread liquidation of leveraged positions, resulting in over $1 billion in trades being liquidated. However, market experts believe that this sharp correction might pave the way for a healthier rebound, as traders reduce leverage and exposure to the yen, potentially setting the stage for a crypto market recovery if broader financial markets stabilize.
Kamala Harris Chooses Minnesota Governor Tim Walz as Running Mate
U.S. Vice President Kamala Harris has chosen Minnesota Governor Tim Walz as her running mate for the upcoming elections. Walz, who has been relatively silent on cryptocurrency issues, was selected from a shortlist that included Kentucky Governor Andy Beshear, U.S. Transportation Secretary Pete Buttigieg, and Pennsylvania Governor Josh Shapiro. His selection is seen as a strategic move to appeal to Midwestern voters. While Walz has not publicly focused on crypto, Minnesota under his leadership enacted legislation to regulate cryptocurrency kiosks. As crypto regulation becomes a key topic in the 2024 election, Harris' campaign has started engaging with the crypto industry, reflecting a broader political interest in the sector.
Ark Invest Acquires $18 Million in Coinbase Shares Amid Market Downturn
Ark Invest purchased 93,797 Coinbase shares worth $17.8 million on Monday, taking advantage of a market slump driven by recession fears and geopolitical tensions. This acquisition, spread across three of its ETFs, marks Ark's first buy of Coinbase shares since June 2023. The firm also bought $11.2 million in Robinhood stock but sold shares in Block and Ethereum Futures ETFs. Coinbase shares fell 7.3% to $189.47, reducing their year-to-date gains to 9.5%, while Ark’s investments in Coinbase have risen significantly over the past year. The firm’s rebalancing strategy aims to maintain diversified holdings within its funds.
Trading Desk Insights
This morning brought a bit of relief to the cryptocurrency market as it clawed back some of Monday's losses. BTC dipped below $50,000 for the first time in half a year, sparking concern, but the long-term outlook for BTC remains solid. This pullback presents a buying opportunity. Early Monday saw a staggering $370 billion wiped off the market, though this wasn't just a crypto issue—it was a broad market sell-off with global stocks also taking a hit. This time around, the newly launched spot crypto ETFs have exposed more investors to these fluctuations.
Certain coins have felt the heat more than others. DOGE has been experiencing significant outflows since March. On Monday alone, exchanges recorded a net outflow of $49.11 million worth of DOGE, the highest single-day figure since April 12. While outflows can reduce selling pressure, DOGE prices plummeted over 20% before bouncing back.
On the ETF front, BTC funds saw outflows of $168.4 million, with muted activity from BlackRock despite Grayscale's notable outflows. ETH flows were more positive with inflows of $48.8 million, mostly led by Blackrock.
Equity futures in the U.S. edged higher on Tuesday after the broad index suffered its worst day in nearly two years due to a global sell-off. The Volatility Index (VIX) spiked to 65, reminiscent of the market turbulence in April 2020. This came after Monday’s sharp sell-off, fueled by economic concerns and disappointing U.S. data from last week, raising fears that the Federal Reserve might be lagging in cutting interest rates to stave off a recession.
Adding to the chaos was a major unwind in the yen “carry trade” after the Bank of Japan hiked interest rates, strengthening the yen and disrupting traders who borrow in yen to invest in global assets. However, Japanese stocks rebounded, with the Nikkei seeing its best day since October 2008, surging 10.2%. Meanwhile, U.S. equity ETFs saw a significant influx of cash, with SPY and QQQ receiving over $5 billion, driven by heavy buying in semiconductors.
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Disclaimer
This research is for informational use only. This is not investment advice. Other than disclosures relating to Secure Digital Markets this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates, and forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as appropriate.
Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The price of crypto assets may rise or fall because of changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.
The information on which the analysis is based has been obtained from sources believed to be reliable such as, for example, the company’s financial statements filed with a regulator, company website, company white paper, pitchbook and any other sources. While Secure Digital Markets has obtained data, statistics, and information from sources it believes to be reliable, it does not perform an audit or seek independent verification of any of the data, statistics, and information it receives.
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Crypto and/or digital currencies involve substantial risk, are speculative in nature and may not perform as expected. Many digital currency platforms are not subject to regulatory supervision, unlike regulated exchanges. Some platforms may commingle customer assets in shared accounts and provide inadequate custody, which may affect whether or how investors can withdraw their currency and/or subject them to money laundering. Digital currencies may be vulnerable to hacks and cyber fraud as well as significant volatility and price swings.
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