- The yen carry trade, a catalyst for recent market turmoil, has unwound, says JPMorgan.
- All eyes turn to the Fed and US elections.
- Crypto liquidity protocol Orderly and Volmex Labs weigh in on what’s next.
Since their dramatic collapse on Monday, Bitcoin and Ether have rallied 21% and 19%, respectively.
In the span of a few days, the two largest cryptocurrencies shirked uncertain Federal Reserve policy and a fraught forex carry trade in Japan.
The crypto market added back $235 billion over that same period, according to CoinGecko.
Neither Bitcoin nor Ethereum have reclaimed their pre-crash prices, however.
And that’s cause for concern.
“Crypto investors should beware of the ‘dead cat bounce’ in markets here,” Timo Lehes, co-founder of real-world asset firm Swarm Markets, shared with DL News.
A dead cat bounce is trader lingo for prices rising after a large crash before continuing to fall again shortly after.
Federal Reserve
Does this mean there’s more trouble ahead?
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Lehes says it all depends on the Fed.
Bitcoin tends to move in tandem with other high-risk asset classes, like tech stocks. That means it’s responsive to Fed policy, he said.
According to data from the Chicago Mercantile Exchange’s FedWatch tool, the Fed is expected to cut interest rates at its September meeting.
Market watchers put 54% odds on a 50 basis point cut and 45% odds on a 25 basis point cut.
Rate cuts — which make dollars cheaper — are bullish for risky assets.
The yen carry trade
Uncertain monetary policy wasn’t the only trigger to this week’s collapse.
The yen carry trade unwound in dramatic fashion as it forced levered traders that took advantage of low interest rates in Japan to quickly exit when those rates were lifted.
That trade is nearly finished, said JPMorgan analysts.
More than 75% of carry trades have been removed from the market, according to an August 7 note from the investment bank.
Ran Yi, co-founder of crypto liquidity protocol Orderly, says to expect more chop for the rest of the third quarter.
“Moving into the fourth quarter, however, there are good grounds for optimism,” he told DL News.
What’s next for Bitcoin?
Yi expects crypto to end 2024 on a new high, citing dialled-down inflation and cash distributions from the FTX bankruptcy proceedings.
Despite the market mayhem, investors share his sentiment. The most popular options trades pay out if Bitcoin’s price hits $100,000 by the end of the year.
US elections
Then, of course, there are the upcoming US elections.
If Donald Trump were to lose in November, some pundits see a death knell for the industry.
But Yi said not necessarily.
“It doesn’t automatically follow that anything but a Trump win will be bad for crypto,” he said. “The Harris campaign has signalled that it’s keen to avoid alienating the crypto crowd.”
On Wednesday, Harris tapped David Plouffe, who used to be on crypto exchange Binance’s global advisory board, and Brian Nelson, who brought enforcement actions against Binance for violating sanctions and anti-money laundering laws, as key advisers.
Only the uncertainty of a closely contested election would pose problems for the markets.
ETFs
Cole Kennelly, founder and CEO of Volmex Labs, added that activity in crypto exchange-traded funds could outweigh the unpredictability of the election and Fed policy.
“BTC and ETH ETF inflows and broader institutional adoption, may be sufficient to mitigate macroeconomic uncertainties,” he told DL News.
Spot Bitcoin ETFs have earned almost $21 billion since their launch on January 11, and spot Ethereum ETFs have earned $760 million since their launch on July 23, according to CoinShares.
Liam Kelly is a DeFi Correspondent for DL News. Got a tip? Email at liam@dlnews.com.
