Analysis of the Crypto Market Crash on August 5 and Future Trends

This podcast features Daniel Yu, Head of Asset Management at Matrixport, who conducted a live analysis on the evening of August 5. He mainly analyzed the reasons behind the crypto market crash on August 5, which were attributed to the appreciation of the yen leading to a return of high-interest assets, impacting both the U.S. stock market and the crypto market. Regarding the future market trends, Daniel believes that the market will maintain a relatively weak attitude, with a low possibility of a significant rebound in the short term.

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Global Market Situation and Analysis

As of today’s close, global financial markets have generally shown a downward trend. The stock markets in Japan and South Korea have suffered heavy losses, with the daily indices undergoing two circuit breakers, and U.S. tech stocks also fell significantly. The main reasons for this series of market fluctuations can be summarized into three points.

Firstly, the appreciation of the yen is a key factor. Last week, the Bank of Japan implemented aggressive interest rate hikes and quantitative tightening (QT) policies, raising the short-term negative interest rate directly to 0.25% and announcing a reduction in the monthly asset purchase scale from 6 trillion yen to 3 trillion yen next year. This signal clearly indicated the implementation of a tightening policy. The direct consequence of the yen’s appreciation is that many investors using yen arbitrage had to close their positions. For example, last year, many investors borrowed yen to buy U.S. stocks to achieve asset appreciation. In the current reverse operation, these investors had to sell high-interest assets and buy back yen to close their positions, further pushing up the yen, creating cyclical pressure. Consequently, funds have flowed back into yen assets, leading to a decline in the prices of U.S. tech stocks and other national assets.

Secondly, the expectation of a soft landing for the U.S. economy has been impacted. On the evening of August 2, the U.S. released non-farm employment data, which was significantly lower than expected, and also revised the data for May and June, significantly lowering the employment figures for the previous period. This news has raised concerns about the U.S. economy. Especially with the unemployment rate rising above 4.2% in July, it triggered the so-called SUM rule, which usually indicates a risk of economic recession.

Finally, tensions in the Middle East have also increased market uncertainty. On August 4, the U.S. deployed troops to Israel, and several Western countries also notified their citizens to leave Lebanon, further exacerbating market panic. This tense situation has led to further declines in global financial markets.

As for the crypto market crash, some investors questioned why Bitcoin (BTC), considered a safe-haven asset, also experienced a drop under these circumstances. The analysis suggests that part of the reason for the crypto market decline is also due to the appreciation of the yen. In recent years, the correlation between the crypto market and the U.S. stock market has been very high, especially after the opening of U.S. ETFs, where investors participating in both markets overlap significantly. Additionally, with Trump’s rising chances of winning the election, crypto performed better than U.S. stocks in mid to late July, causing a slight decrease in correlation, but overall, the correlation remains high. Such a market background makes it difficult for the crypto market to stay independent of global economic turmoil.

Reasons for the Crypto Market Crash

The crypto market crash can be attributed to several factors. First, the appreciation of the yen led to a return of high-interest assets, which was one of the linked factors affecting both the U.S. stock market and the crypto market. The appreciation of the yen forced arbitrage traders to close their positions, causing capital inflow, which similarly affected the crypto market.

Secondly, the crypto market itself faced some supply-side pressure. Recently, there were reports that the U.S. government might sell seized Bitcoin, causing market panic. Especially on Monday, a related wallet transferred $2 billion worth of Bitcoin to a new address, interpreted as a signal of the government possibly selling Bitcoin.

Additionally, miner selling is another important factor. Since July, the outflow of Bitcoin from miner wallets has reached its highest level since May. The stock prices of major Bitcoin miners have also entered a downward trend, indicating that miners are not in an optimistic situation. Coupled with a more than 10% increase in the difficulty of creating new blocks on the blockchain as of August 1, miners face greater pressure to liquidate.

Finally, renowned market makers like Jump Trading have also been liquidating large amounts of ETH positions, further exacerbating the downward pressure on the market. Jump Trading’s sell-off and Grayscale’s large-scale sell-off led to a significant drop in ETH prices, with the market exhibiting a “shitcoin” market trend.

Jump Trading’s subsidiary, Jump Crypto, is a well-known market maker that provides options and spot trading, invests in some primary market projects, and provides liquidity for these projects. Due to regulatory investigations, Jump Crypto may be forced to exit the crypto business, as its main business remains in the traditional financial market.

In the current market environment, we believe that the short-term market may require some time for digestion and consolidation. The two important factors behind this decline — the capital return caused by the appreciation of the yen and the supply pressure in the crypto market — may not dissipate in the short term. The cyclical effect of capital inflow and supply-side pressure needs time to be digested, including large-scale sell-offs and asset sell-offs after MTG debt repayment. Therefore, the market requires time for comprehensive digestion and adjustment.

Market Sentiment and Investment Expectations

In a long-term volatile market, we advise investors to maintain a long-term investment goal and not leverage excessively in the short term to avoid unnecessary losses in short-term market fluctuations. If you choose to leverage, you may find yourself in a disadvantaged position due to poor timing, so we recommend using leverage cautiously.

For conservative investors, we suggest investing in relatively principal-protected products during the current market consolidation period. For example, Shark Fin products, which offer principal-protected returns while also allowing for some excess returns from rising or falling markets. Similarly, products like Smart Train offer principal-protected returns with additional range-bound earnings. Additionally, fixed-income and real estate products are recommended for conservative investors at this time.

For long-termists, those with long-term expectations in crypto investments, such as those planning to hold Bitcoin (BTC) long-term, we suggest considering Push Selling strategies. Currently, market panic is high, with volatility around 110–120, making it relatively favorable to sell options now, enabling low-cost entry and high option fee earnings.

Moreover, AQ products can be considered. These products periodically purchase Bitcoin and other assets at a discount. In the current market environment, this strategy may be suitable for investors looking to accumulate crypto assets long-term. However, AQ products also carry risks; if the asset price drops significantly, investors may need to buy the asset at twice the discounted price, thus bearing considerable downside risk.

Overall, we believe that the market may need time to digest the current negative factors in the short term, with potential fluctuations at the bottom. However, in the long term, once miner selling and market supply-demand balance are restored, the prices may stabilize at a higher level. Therefore, we advise investors to be patient, avoid high-leverage products at this time, and instead be “friends of time,” following their investment strategies to achieve long-term investment goals.

Some investors have asked about market forecasts and whether it is a good time to buy the dip. Currently, the overall market remains weak, despite Bitcoin’s price decline during the live stream. We advise investors to remain cautious in this high-volatility market, as significant market fluctuations may occur in the short term.

Additionally, Ethereum (ETH) underperformed compared to other altcoins today, mainly due to rumors and institutional selling. After these institutions sold large amounts of Ethereum, market liquidity was affected. Coupled with the lack of anticipated inflows following the approval of the Ethereum ETF, and rather an outflow of funds, these factors contributed to Ethereum’s price decline.

Overall, we recommend that investors remain cautious in the current market environment, especially in the face of high volatility. Although there are signs of market recovery, the overall trend may remain weak. For investors with long-term investment plans, we suggest gradually building positions and avoiding excessive leverage to manage market uncertainty.

Fundamental Analysis of Various Crypto Assets

In discussing the fundamentals of various crypto assets, we focused on major coins like Solana and Ethereum. First, regarding Solana’s buying opportunities, we believe that the correlation among these major coins is high, and Solana may have received support from relevant U.S. institutions, showing active on-chain activity. From a fundamental perspective, major cryptocurrencies generally have solid foundations, making their pricing relatively accurate. We can use the DCF (Discounted Cash Flow) model to evaluate these assets and predict the market reaction to the approval of their ETFs.

Additionally, some investors have asked whether they can buy Ethereum. From a fundamental perspective, if the price drop this time is due to passive selling, we recommend that investors buy on dips and gradually build positions without rushing to catch the bottom. The key is not to worry too much about timing the bottom, as there will always be suitable buying opportunities in the market.

For ordinary investors, the participation rate in on-exchange options trading is generally low, mainly dominated by institutional investors. In the options market, trading indicators can reflect market expectations for the future. For example, if PUT option prices are high during a certain period, it indicates that the market may have a pessimistic outlook for the future. The overall market is currently weak, so we advise investors to be cautious in their operations, possibly choosing structured products with drawdown controls or fixed-income products to mitigate risks.

We added this live broadcast mainly because of the intense market volatility and high investor concern. Faced with such “black swan” events, it is natural to feel uneasy, but we should remain calm, ensure sufficient liquidity to handle potential risks, and avoid over-leveraging. When making investment decisions, investors need to assess whether the chosen investment tools will lead to additional risk exposure or require extra liquidity support.

In the long term, we believe that the crypto market still has good growth prospects. The entire market is in an upward range, and investors should maintain a long-term perspective, not rush for short-term gains. We hope that everyone can maintain a calm mindset in the current market environment, aim for long-term investment, and plan investment strategies reasonably.

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