THE PHENOM CRYPTO LETTER

GM,

Well…that was a wild week. WTF is going on with the crypto markets? Feels pretty wild to see the markets dump 20% in a day. If you are on Twitter the sentiment feels like its the literal end of the world. Its pretty easy to get sucked into that. However, if you zoom out over a longer time horizon these market dumps happen often. Our job as investors is to not overreact and in the wise words of Raoul Pal, “don’t fuck this up”. Doing that is simple but can feel really hard during markets dumps like this.

1. Don’t get shaken out. Hold your coins.

2. Add to your high conviction positions if you can.

Thats it. Pretty simple.

Thanks for reading,

-Will

Here’s what we’ve got this week:

• Market Update Videos from Eric and Raoul Pal 🎥

• Whats going on with the Crypto Markets?! 😳

• What Blockchains are actually profitable? 💵

Jump to a Section :

• Market Rundown

• Reading Corner

• Blockbuzz

• Crypto Twitter

• Memes

MARKET RUNDOWN

We can all see what the markets doing this week and its not good. However, if you are able to deploy some capital we are getting an opportunity to add to our high conviction positions at discount prices. Below I am including a video update Eric sent to our Premium Members earlier this week and a great video from Raoul Pal on the market crash. Highly recommend taking the time to watch these.

What Happened to Crypto This Week?

In the past week, the cryptocurrency market (and equities) has experienced a major dump as I’m sure everyone has noticed. Several factors have contributed to this in my opinion. I’ll lay out the major ones and their impact below.

What is Impacting the Market?

1. Macro Economic Signals

   • A major sell signal emerged last Friday when the 10-year U.S. Treasury yield dropped by 40 basis points. Concurrently, oil prices plummeted, equities continued to decline, and the VIX (Volatility Index) spiked by 25%.

   • Impact: These signals suggest a short-term bearish sentiment, though some experts believe the long-term outlook might stabilize with potential Federal Reserve rate cuts in September. When you have shifts like this liquidity moves out of risk assets quickly.

2. Institutional Selling

   • Significant selling activity from major institutions, particularly Jump Trading, has been observed. Jump Trading reportedly moved substantial amounts of Ethereum to exchanges, converting it to stablecoins.

   • Impact: This suggests strategic selling and profit-taking, which can pressure prices downward.

3. ETF Flows

   • Bitcoin experienced net outflows of $237 million, while Ethereum's flows remained neutral. The introduction and subsequent adjustments of crypto ETFs have introduced new dynamics to the market.

   • Impact: These flows are a double-edged sword, potentially stabilizing long-term but causing short-term disruptions.

4. Political Climate

   • Recent political developments, particularly Vice President Kamala Harris's rise in polls against Donald Trump, have injected uncertainty into the market. Historically, markets have shown a preference for a Trump win due to perceived favorable policies towards crypto.

   • Impact: This political shift could lead to increased volatility as the market adapts to potential regulatory changes.

5. Geopolitical Tensions

   • Middle East tensions have historically had a limited long-term impact on crypto markets. However, they contribute to short-term volatility.

   • Impact: Typically seen as noise in the long-term market outlook but relevant for short-term traders.

6. Supply Dynamics

   • Distributions from Mt. Gox and other entities like Genesis and Grayscale are closely watched. Recent distributions have been in kind (e.g., ETH, BTC, SOL), with cash distributions from FTX on the horizon.

   • Impact: While current supply levels are manageable, the market remains cautious about potential increases in supply.

7. The Yen Carry Trade and the Bank of Japan's Rate Hike

   The Bank of Japan's (BOJ) recent decision to raise interest rates has major implications for the crypto market, particularly through the yen carry trade.

   • Yen Carry Trade: This strategy involves borrowing yen at low-interest rates to invest in higher-yielding assets, including cryptocurrencies. With BOJ raising rates, the cost of borrowing yen increases, making the carry trade less attractive.

   • Impact: As traders unwind these positions, there could be additional selling pressure on cryptocurrencies, contributing to market volatility. For more on this we’ve added some link in the Reading Corner and Twitterverse sections.

Market Sentiment and Strategy

Despite the bearish signals, we strongly believe this period could present a buying opportunity. The rationale is based on the long-term potential of the crypto market and the belief that current prices may offer good entry points for investors who were previously bullish. We advise adding to core positions and not exiting your bags.

READING CORNER

A collection of longer form content we are consuming this week 

Polymarket has been exploding with the election cycle. Quick read on how it works

A fire side chat with Bitcoin Jesus Michael Saylor

A thread on the Yen and how its impacting risk assets

BLOCKBUZZ

Quick Hitters from the week

• Ethena Expands USDe Access with Solana Integration: Adds SOL as a backing asset, enhancing liquidity and stability.

• Bitcoin Dips to 'Extreme Fear' Level: Falls on August 5th as $168 million exits ETFs, signaling heightened market anxiety.

• BlackRock and Nasdaq Push for Ethereum ETF Options: Advocate for options on their spot Ethereum ETF, aiming to broaden investment avenues.

• Market Turmoil: Bitcoin and Ether Prices Drop: Bitcoin plunges below $50,000 and Ether under $2,200 amid moves by Jump Crypto and US election uncertainty.

• MicroStrategy Boosts Bitcoin Holdings: Increases its BTC stash to 226,500 coins and introduces a new BTC yield metric to highlight investment performance.

• CFTC Subpoenas Ben ‘BitBoy’ Armstrong’s Former Company: Investigates fraud allegations, focusing on activities related to tokens like BEN.

• Jump Crypto's Massive Transfers Amid Price Decline: Moves hundreds of millions in crypto as the market experiences significant price drops.

THE TWITTERVERSE

A collection of the most interesting stuff on Crypto Twitter this week

Bankless breaks down a few of the blockchains that are producing actual profits. This is (obviously) a key metric to look at when evaluating investing in a blockchain from a fundamental standpoint. I state the obvious here because a lot of crypto investors think fundamentals don’t matter. During certain times and with certain protocols they are correct. However, if you want to make money over the long term you still need to invest in companies that actually* make money and have a mechanism for returning that value to investors.

Quick TLDR of the Yen Carry trade that has started to unravel and send shockwaves through the market this week.

Nassim Taleb has lost the plot. Just a bit of I told you so porn

WAGMI

For the (crypto) Culture

Big OOF

Invest in memes, investment memes

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