Ohhhh boy. There's no sugar coating it - this week was bad. I thought freaking World War 3 started or something when I woke up and checked the charts the other day. We survived Mt Gox, Terra Luna, and FTX collapse. This is just a blip. By the way, we're hiring a Research Analyst. If you want to research Crypto all day and get paid for it, apply here.
Here's what we got today:
WTF happened this week? And what should you do next?
Signs that We're Back. Here are some indicators to see when we'll turn bullish again.
Around the web. Lido introduced Lido Institutional, Synthetix USDx on Arbitrum, Eclipse is now open for devs, and more.
Today's email is brought to you by Mantle - the modular Ethereum rollup.
Here's your Edge 🗡️!
Markets
What caused this week's Crash?
Image by Oleg Gamulinskii from Pixabay
Monday was a disaster for markets. This was the biggest Crypto crash since FTX in 2022. I went from "I'll have sparkling water" last week to "we'll have the free tap water please."
• Bitcoin took a nosedive from ~$60k to ~$50k. • $ETH went from $2.7k down to $2.2k. • And don't get me started on what happened to altcoin prices.
So you're wondering what happened. Here's our guess (backed by data):
1. The Macro FUDs
The top culprit isn't actually crypto - it's macro and TradFi. Remember, Crypto's still tied to the bigger events.
The Bank of Japan raised its interest rate from near zero to 0.25%.
Why did it crash the market? Rising interest rates led to a decrease in the supply of the Japanese Yen. And when the money supply decreases, asset prices decrease as well. The decrease will be even deeper for risky assets like crypto.
That's the simple explanation. If you want a bit more detail, here you go:
Japan's near zero interest rates allowed investors to borrow money cheaply. To earn better returns, investors borrowed cheaply in Yen and invested in other countries where the interest rates are higher. Aka arbitraging the currency. This is called "Yen carry trade".
Since nobody was expecting Japan to increase the rates, billions were invested into the "Yen carry trade".
When Japan increased the interest rate, investors had to sell their assets to cover their loans.
Suddenly, billions in the "Yen carry trade" were being sold on the market. This gigantic sell pressure was the cause of the market crash.
Japan wasn't the only culprit, though. In July, US job growth slowed more than expected, and people started worrying that the US might be heading into a recession.
And the fears are already doing real damage. It's like canceling a trip because you heard a rumor about bad weather.
Geopolitics added to the mess. Tensions between Israel and Iran are increasing, and a full-blown war could break out anytime.
2. Jump Crypto Sold a Bunch of ETH
Jump Trading is a major high-frequency trading company. They launched their crypto division, Jump Crypto, in 2021.
Apart from trading, they also backed many projects in crypto.
They had to cover ~$320 million lost due to the Wormhole hack.
As a leading market maker, they lost ~$300 million in the FTX blowup.
They were accused of propping up Terra's peg as well, which ended in a disaster.
The CFTC has launched a probe into their trading business as well.
Now, there are even rumors about Jump closing their crypto shop.
Since July 24th, Jump Trading has been selling $wstETH worth around $481 million. Unsurprisingly, ETH prices fell heavily, from ~3.5k to ~2.4k.
Below is a screenshot of the $stETH balance in one of their wallets.
Source: Arkham Intelligence
Similarly, leading VC firm, Paradigm, has also been accused of selling ETH.
Source: Arkham Intelligence
3. Trump's chance has gone down
Trump's cheerleading for crypto was a big catalyst for pumping crypto.
The probability of Trump winning the presidency was high for a while. On Polymarket, it was as high as 72%.
But he has lost a lot of ground to his main competitor, Kamala Harris.
Unlike Biden, her cognitive capacity isn't under scrutiny.
She has full backing from President Biden and Democratic donors.
And her new VP candidate, Tim Walz, has increased her popularity.
She has also been trying to connect with the tech community. And she has found some success with it.
Now, Trump's chance to win the election has fallen to 51%. This likely contributed to the market crash.
Source: Polymarket
What's Next?
No one really knows what is going to happen in the next few months. So, you should focus on survival.
Allocating 90%+ to altcoins is probably not the best move. Personally, I'm aiming for 25% majors, 45% stables, and 30% alts.
If I want altcoins, I'll look for ones that are more fundamentally based than pure hype (like memes or AI). Some examples I like are Mantle, Pendle, and BananaGun.
If you want to know more about my approach, check out this thread I posted yesterday.
Mantle introduced mETH and fBTC. These are optimized versions of ETH and BTC for higher efficiency and enhanced functionalities within the ecosystem. These assets provide flexible options for interacting with the ETH and BTC chains. For instance:
You can use mETH to farm $COOK, a new asset launching in two months, while still earning regular ETH staking rewards.
The key feature of fBTC is its ability to generate yield, addressing the challenge of idle Bitcoin. You can use fBTC for lending, staking, liquidity provision, and more!
Mantle's treasury holds a significant amount of sUSDE, paving the way for an upcoming partnership with Ethena, which is going to translate into airdrop rewards for users.
Alright, so your bags are down. The question on everyone's mind is, "When will the bull market return?" No one knows for sure. All we can do is monitor certain indicators to see when the trends reverse. I'm going to show you some of the things I'm watching. When the data's telling me things are becoming more bullish, that's my indicator to go more risk on with my investing.
1. ETF Inflows
Remember the "mini bull run" we saw in early 2024? BTC ETF speculations sparked that. ETFs are TradFi's door into crypto, and millions keep pouring in. It's worth to see how much inflows will keep coming in for both BTC and ETH. Where to find the data. I use Farside to monitor ETF data. It has a clean table layout. If you're into charts, The Block is great as well.
2. Monitor Key DeFi Metrics
You should make visiting DeFiLlama a part of your daily routine.
It allows you to monitor all the key metrics to see if they're going up. Below are just a few of the metrics that'll likely indicate if the bull run is coming:
DEX volumes
Total Stablecoin market cap
Total Value Locked across all chains
"Men lie, women lie, the numbers don't."
3. Monitoring Sentiment
Sentiment means the overall vibe and feelings from people about Crypto. Basically, when people are feeling good about Crypto then prices go up in theory, and vice versa. So how can you monitor it?
You can use Social Blade to monitor YouTube views of top crypto channels. Views up = good.
If you are active on Crypto Twitter, monitoring the "vibes" of the crypto community can be a great indicator. It's hard to explain, but I can tell by the type of posts and jokes people are making what the general feeling is.
A new tool I'm playing around with is Kaito.ai. They use A.I. to monitor the overall market sentiments, and can even monitor the sentiments of individual narratives and tokens. Here's the sentiment analysis for the past 6 months. So, I'll be closely monitoring when the tides shift (I'll make sure to let you guys know)
Source: Kaito
The Block has a dashboard for crypto-related social metrics.
These are just some of the indicators I monitor regularly. There are many more indicators other people use.
Technical analysis indicators like moving averages.
Trading volume on major exchanges like Coinbase & Binance.
No. of downloads for crypto apps on App Store and Play Store.
But my ultimate indicator? Your normie cousin asking about crypto. That's when retail is back again.
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🚀 DeFi Catalysts
Lido introduced Lido Institutional. It'll provide liquid staking services to institutions.
Synthetix launched their native stablecoin USDx on Arbitrum. It'll allow depositors to take a 0% interest loan against their collateral.
Thorchain founder promised to buy a lot of $KUJI and help the near futureKujira team with their debt. We can expect a synergy between Kujira and Thorchain in near-future.
Rage Trade launched the $RAGE tokens on Hyperliquid. Rage Trade is a multichain perp aggregator.
Compound Finance is discussing the growing the Compound Treasury by using the $ETH held in Timelock and multi-sig wallet.
🪂 Airdrop Alpha
Duper launched the season 1. It is a social war game. Users can earn rewards by participating in the game.
Zircuit L2, a zkEVM rollup, started Phase 1 of their mainnet launch alongside new programs such as the S1 airdrop claim.
Mode Network has enabled the claiming of the Season 1 vested airdrop. It is available for users who kept assets on Mode.
GRVT started the Open Beta Testnet. Welcome rewards include a total prize pool of 2.4m ZK tokens & 600,000 Mystery Box raffle tickets.
Kamino has concluded season 2 of the program. 350 million $KMNO will be distributed to users in mid-August.
🚀 New Launches
Elixir launched deUSD - decentralized US Dollar. It'll be a fully collateralized, natively yield-generating stablecoin.
Eclipse, the Ethereum L2 that uses Solana VM, is now open for developers. It combines all the best features of Ethereum, Solana, and Celestia.
ORE launched its version two on Tuesday. Users can mine it by solving personalized computational challenges.
📰 Industry News
Ronin Bridge was drained for around $12 million in tokens. The white hackers have returned the drained funds.
Kujira team's leveraged positions were liquidated and led to a 55% drop in $KUJI within 24 hours.
Senator Cynthia Lummis officially introduced The Strategic Bitcoin Reserve Bill. It aims for the transparent management of the BTC holdings of federal govt.
DISCLAIMER: I'm NOT a financial advisor. This content is for education and information purposes only. Crypto and DeFi are risky and speculative. Please do your research before investing. Whenever you're ready, there are 3 ways we can help you:
⚙️ The DeFi Edge PRO- Designed for busy people who want to stay ahead of the curve. Leverage our research to save you hours each week, and to see what we're personally investing in. Join the waitlist.
🚀 The DeFi Edge Ventures- We identify, invest, and help amplify DeFi Protocols that positively impact the Crypto space.
🧠 DeFi 2nd Brain - Feeling overwhelmed with information? Organize your research with a 2nd brain system.
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