Where To Now? The Fallout From This Week’s Big Market Crash

Hey LinkedIn,

It was a week to remember (or forget) as crypto prices tanked. But what caused it, and what will happen next?

A bloodbath across both crypto and macro

Led by BTC (-20%) and ETH (-30%), the crypto market had its worst day since FTX collapsed in late 2022.

Global markets weren't much better. The Dow Jones and S&P 500 posted their worst days since 2022. Over in Japan and Taiwan, their stock markets put in their worst sessions in several decades.

Why?

The lead domino happened last week after the Bank of Japan (BoJ) lifted interest rates above zero for the first time since 2007.

Simply put, the bank's surprising move caused a cascade of liquidations and margin calls. Panic gripped the market, which caused more panic, and so on. (Read this for more details.)

Unfortunately, this event coincided with other developments and news stories that only added to market uncertainty:

• Donald Trump's odds?of winning the U.S. election were falling.
• Worse-than-expected U.S. economic data was stoking recessionary fears.
• Iran had pledged?to retaliate after the Hamas leader was killed.

To appreciate how crazy things were, just look at the Volatility Index (VIX). On Monday, it was at levels that had only been seen twice since the GFC.

For crypto specifically, the market also had to process Jump Trading, a large market maker that unexpectedly sent hundreds of millions worth of ETH to an exchange, likely to sell.

Zoom out & don't panic

These deep corrections are stressful for many, as evidenced by the Crypto Fear & Greed Index, which fell to its lowest level (17) since mid-2022 this week.

During these times, zooming out can be helpful.

Even if we look at the March 2020 crypto dump, one of the biggest in history, you'd barely notice it.

Ask yourself, has anything changed about the outlook for crypto? Often, the answer is no—particularly after these macro-led crashes.

Two big lessons from this crazy week

#1. DeFi protocols withstood the chaos

All DeFi protocols and decentralised stablecoins worked as intended, with Aave's treasury generating $4M+ in daily revenue.

The same couldn’t be said for TradFi, where several major trading platforms went offline amid the turbulence.

#2. The money printer could turn on again in the face of instability

The global economic outlook isn't looking too flash. One measly rate hike from Japan was enough to tank global markets and prompt calls for an "emergency meeting" with the Federal Reserve.

Where to now?

It is difficult to know if more pain will come, but you must wonder how much lower the crypto market can go.?

Encouragingly, all markets are rebounding strongly.

It’s hard to time the market, so the best approach may be to enjoy the lower crypto prices while they’re here.

Remember, history tells us that pullbacks during bull markets are to be expected. We believe this was just another one of them.

Morgan Stanley to offer Bitcoin ETFs

What happened??Investment banking giant Morgan Stanley started letting its financial advisors offer some spot Bitcoin ETFs to certain clients. Previously, its advisors could facilitate the purchase of these ETFs only if their client specifically requested.

Why does it matter to you? More asset managers and banks being able to offer Bitcoin ETFs to clients could spur a second wave of ETF demand.

MicroStrategy to make massive Bitcoin buy; Tether posts record profit

What happened? MicroStrategy announced plans to issue more debt to buy $2B worth of BTC. It came as Tether, largest stablecoin issuer, posted a record $1.5B net profit and declared a $5B stockpile of excess reserves.

Why does it matter to you? MicroStrategy's Bitcoin buys are showing no signs of slowing down, and importantly, Tether's record profit and strong reserves should finally put any fears it is unbacked to rest.

ETH ETF outflows subside

What happened? Grayscale’s ETH ETF (ETHE) had its lowest outflows since July’s launch ($32M) at a time when ETH has seen three out of four days of net inflows, with $98.4M coming off the back of the market sell-off.

Why does it matter to you? Grayscale has been a huge source of outflows and selling onto the market—stabilisation could result in more net inflows. Some may have attributed the launch as a failure, however, doing so looks over extremely promising signs, such as three days of over $100M daily flows into BlackRocks ETHA.

• Solana hit a new all-time high in ETH terms.
• Ripple was fined $192M as part of a final judgment in its battle with the U.S. SEC, significantly less than the targeted $3.1B.
• Arbitrum used by gaming giant Ubisoft to develop a game on an animation series produced for Netflix.
• Lido launched a liquid-staking solution targeting institutions.
• Ethena announced support for Solana to increase the adoption of its synthetic dollar, USDe.
• Bittensor and Sui were the basis of two new funds announced by Grayscale.
• Aave stood strong in the market downturn, generating $4.75M in daily revenue thanks to large liquidations.
• Ronin bridge was paused due to an exploit by a white hat hacker.?

Thanks for reading the Weekly Shift.

We hope you've enjoyed it, and look forward to seeing you next week!

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