The yen carry trade, the catalyst for the recent market turmoil, has not abated, JP Morgan said. All eyes turned to the Fed and the US election. Crypto Liquidity Protocol Orderly and Volmex Labs Focus on What's Next
Since their dramatic fall on Monday, Bitcoin and Ether have rallied 21% and 19%, respectively.
In the space of a few days, the two biggest cryptocurrencies have shrugged off uncertain Federal Reserve policy and a forex carry trade in Japan.
The crypto market added $235 billion back in the same period CoinGecko.
However, neither Bitcoin nor Ethereum regained their pre-crash prices.
And that's cause for concern.
“Crypto investors should be wary of 'dead cat bounce' in the markets here,” Timo Lehes, co-founder of real-world asset firm Swarm Markets, shared with News.
A dead cat bounce is trader lingo for prices that have risen after a major crash, only to continue to fall again shortly thereafter.
Federal Reserve
Does this mean more trouble lies ahead?
Join the community to get our latest articles and updates
Lehes said it all depends on the Fed.
Bitcoin tends to move in tandem with other high-risk asset classes, such as tech stocks. That means it responds to Fed policy, he said.
According to Chicago Mercantile Exchange data FedWatch toolThe Fed is expected to cut interest rates at its September meeting.
Market watchers put 54% odds on a cut of 50 basis points and 45% odds on a cut of 25 basis points.
Rate cuts — which make dollars cheaper — are bullish for riskier assets.
Yen carry trade
Uncertain monetary policy wasn't the only trigger for this week's fall.
The yen carry trade declined in dramatic fashion as leveraged traders who took advantage of low interest rates in Japan were forced to exit quickly when those rates were lifted.
That trade is almost over, JPMorgan analysts said.
According to an Aug. 7 note from the investment bank, more than 75% of carry trades were removed from the market.
Ron Yi, co-founder of crypto liquidity protocol Orderly, said to expect more chop in the rest of the third quarter.
“Going into the fourth quarter, however, there are good reasons for optimism,” he said News.
What's Next for Bitcoin?
Yi expects the crypto to end 2024 at a new high, citing dialed-down inflation and cash distributions from the FTX bankruptcy proceedings.
Despite the market turmoil, investors shared his sentiment. The most popular options trades pay off if the Bitcoin price reaches $100,000 by the end of the year.
US elections
Then, of course, there's the upcoming US election.
If Donald Trump loses in November, some pundits see the death knell for the industry.
But he said it is not necessary.
“It doesn't automatically follow that anything other than a Trump victory is bad for crypto,” he said. “The Harris campaign indicated it was eager to avoid alienating the crypto crowd.”
Wednesday, Harris Knocked David Plouffe, who sits on the global advisory board of crypto exchange Binance, and Brian Nelson, who brought enforcement actions against Binance for violating sanctions and anti-money laundering laws, as lead advisors.
Only the uncertainty of a tightly contested election could cause problems for the markets.
ETFs
Cole Kennelly, founder and CEO of Volmex Labs, said activity in crypto exchange-traded funds will outpace the unpredictability of elections and Fed policy.
“BTC and ETH ETF flows and wider institutional adoption may be enough to ease macroeconomic uncertainties,” he said. News.
Spot bitcoin ETFs have generated nearly $21 billion since launching on January 11, and spot ethereum ETFs have generated $760 million since launching on July 23, Coinshares said.
Liam Kelly is the DeFi Correspondent for DL News. Got a tip? Email at [email protected].