Quick takes on what is going on and what it might mean for crypto:
- Quote from my friend who is a trader on a major trading desk in HK - said his seniors said it was a "top 3 worst day" in terms of risk asset offloading
- The JPY carry trade unwind was way larger than anyone was expecting (and the BOJ nuking that trade was also not in the books so nobody had time to derisk)
- Basically everyone on Wall Street had exposure (it was a low effort free money trade for awhile, and on the street - if someone else is doing it and earning a few extra bips you have to do it as well)
- Early indicators of risk-off flagged towards the end of the trading week where the spread between yields for HY Bonds (basically higher risk) and IG Bonds (higher quality) "blew out" - representing a major sentiment change towards risk from credit investors - smart traders I follow called this then
- Over the weekend because crypto is live 24/7 - if you are a fund with any exposure to BTC ETH SOL etc and your buddies on the street are telling you this massive risk off unwind is coming on Monday, you're going to sell everything you have to frontrun this action
- This led to all majors being down only through the weekend and it only got worse as more people figured out what was going on. Cascading exits have led to PA that is worse than just nominal impact from the unwind.
- Also Crypto is reflexive because everyone is so levered, so liquidations etc etc
- Early read is that this is largely an isolated black swan event caused by irresponsible wall street shenanigans - doesn't mean the ripple effects won't be large but it's better than just recession fears or WW3 (less systemic)
- And on a positive note - while tradfi is circuitbreaking and brokerages are turned off - crypto was trading 24/7 with major DEXs handling massive amounts of volume. Instead of allowing OTC markets and large block traders to kill your equities prices while your market is closed - crypto gave you a chance to jump ship with everybody else.
- Interesting thought - odds of a more drastic rate cut just shot up. What does that mean for crypto yield generators reliant on government debt ( $MKR, $ONDO, etc.) vs. native yield generators ( $PENDLE, HLP, etc.)?
- Quote from my friend who is a trader on a major trading desk in HK - said his seniors said it was a "top 3 worst day" in terms of risk asset offloading
- The JPY carry trade unwind was way larger than anyone was expecting (and the BOJ nuking that trade was also not in the books so nobody had time to derisk)
- Basically everyone on Wall Street had exposure (it was a low effort free money trade for awhile, and on the street - if someone else is doing it and earning a few extra bips you have to do it as well)
- Early indicators of risk-off flagged towards the end of the trading week where the spread between yields for HY Bonds (basically higher risk) and IG Bonds (higher quality) "blew out" - representing a major sentiment change towards risk from credit investors - smart traders I follow called this then
- Over the weekend because crypto is live 24/7 - if you are a fund with any exposure to BTC ETH SOL etc and your buddies on the street are telling you this massive risk off unwind is coming on Monday, you're going to sell everything you have to frontrun this action
- This led to all majors being down only through the weekend and it only got worse as more people figured out what was going on. Cascading exits have led to PA that is worse than just nominal impact from the unwind.
- Also Crypto is reflexive because everyone is so levered, so liquidations etc etc
- Early read is that this is largely an isolated black swan event caused by irresponsible wall street shenanigans - doesn't mean the ripple effects won't be large but it's better than just recession fears or WW3 (less systemic)
- And on a positive note - while tradfi is circuitbreaking and brokerages are turned off - crypto was trading 24/7 with major DEXs handling massive amounts of volume. Instead of allowing OTC markets and large block traders to kill your equities prices while your market is closed - crypto gave you a chance to jump ship with everybody else.
- Interesting thought - odds of a more drastic rate cut just shot up. What does that mean for crypto yield generators reliant on government debt ( $MKR, $ONDO, etc.) vs. native yield generators ( $PENDLE, HLP, etc.)?
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