The Breakdown First Five - Monday, August 5, 2024

Welcome back to The Breakdown First Five — the 5 most interesting and/or important stories in bitcoin, crypto, and markets to start your day.

5. Market Carnage

Global markets are melting down with crypto tokens leading the drawdown. Since Sunday Bitcoin is down over 13%, Ethereum has collapsed by 20% and the long tail of alts is a bloodbath. The world is going risk off with the Japanese Nikkei closing down 12% on Monday, it’s worst day ever. Taiwan, South Korean and Hong Kong markets also had historically awful days. Whether the comparison is 2008 or 1987, this is all bad for risk assets. 

4. Jump Out?

Jump trading appears to be exiting crypto markets in size. The gigantic market maker has hit a string of controversy over the past year being referenced in the Terraform Labs and Binance lawsuits. This culminated in the head of Jump crypto, Kanav Kariya, leaving the firm in June. The firm is also reportedly under CFTC investigation. Jump has spent the past two weeks unstaking over $400M in ETH. The whole stack was sent to exchanges on Sunday. 

3. Soft Jobs

The proximate driver that kicked off market turmoil was an ultra-soft jobs report on Friday. Just 114,000 payrolls were added, falling far short of the 185,000 estimate. Unemployment rose to 4.3%, unambiguously triggering the Sahm rule and signaling a US recession had begun. Narratives at the time were that the Fed rate cuts were now assured. Now it seems like something much worse is brewing.

2. Yen Unwind

Shortly before last week’s Fed meeting, the BOJ delivered a surprise rate hike which sent the Yen soaring. The entire year’s worth of weakness has been unwound since mid-July, putting the systemically important Yen carry trade in jeopardy. This trade is a major part of global funding markets so it’s unwinding it a massive flush of leverage across global financial firms. We have no historical precedent for what’s currently unraveling and no idea how bad this can get. 

1. Emergency Cuts?

Soft calls that the Fed should have cut rates in July have escalated into screaming for emergency cuts. Markets are currently pricing in a 25bps rate cut to be delivered this week and 5 rate cuts are now fully priced in for the year. Banks are scrambling to update their rate forecast. The issue is that a rate cut might do more harm than good if global markets are melting down due to a closing of trans-pacific interest rate gaps.