Trakx Weekly Update: August 5

Key Crypto Market Figures

CTIs Weekly Performance

The past week has seen digital assets come under severe selling pressure as highlighted by the 15% slide in the Trakx Top10 Crypto CTI. While our flagship index is down heavily, the worst performer was the Meme CTI, which fell by 27% over the prior seven days. Unsurprisingly given the bearish backdrop, even the best performing CTI was in the red, with the defensive Inflation Hedge CTI losing 0.6%.

The speed, depth and breadth of the price declines were on a scale not witnessed since the blow-up of FTX in November 2022 that marked the beginning of the end of the last crypto-winter. Back then, global policymakers were worried about losses in crypto asset markets having a negative spillover effect into the tradfi economy. Ironically, this time around, the direction of causality is reversed. Crypto is suffering contagion from tradfi assets, whose prices have dropped precipitously amid fears that central banks have put their economies on a recessionary trajectory by maintaining overly restrictive monetary policy stances.

The catalyst for concern was the release of softer-than-expected US data, most significantly non-farm payrolls which showed a sharp deceleration in the pace of hiring – the headline number came in at 114,000 jobs, half the pace seen over the past year – that contributed to pushing the jobless rate up by 0.2 percentage points to 4.3%. Combined with a disappointing earnings season, which challenges the nosebleed valuations in tech stocks, investors are increasingly concerned that the US economy will be unable to repeat the 2023 recession dodge, and that such macro conditions will have a detrimental impact on future crypto demand.

Notably, both tradfi and crypto asset prices have fallen despite US interest rate futures having moved aggressively to price-in Fed rate cuts. In fact, 50bp of Fed easing is now almost fully priced for the September meeting and there is some anticipation of an inter-meeting emergency Fed cut if financial market turbulence persists. So much for a Fed pivot being dovish!

Lastly, it is not just the US were tradfi investors are showing signs of panic. Overnight the Japanese stock market fell 12% – a daily decline that exceeds that of Bitcoin and triggered automatic circuit breakers. Such a large decline underlines the the magnitude of the challenge facing the Japanese economy. After last week’s BoJ hike (talk about poor timing) Japan’s key interest rate stands at just 0.25% meaning, unlike the Fed which has room to cut borrowing costs to ward off economic headwinds, the BoJ has much less room for conventional monetary policy manoeuvre. For a country with a record breaking government debt load (over 230% of GDP), half of which is already owned by the central bank, this is an extremely precarious situation. While it may not feel like it given such lousy market conditions, Japan’s policy predicament provides crypto fans with one of the clearest rationales for owning a decentralized private digital currency that is inviolable to government manipulation.

Sources: Trakx, Coingecko, Alphavantage

Market Trends

• $500B plunge: Largest 3-day wipeout for crypto in a year: Cointelegraph
• Crypto Market Rout Resumes as Equities Trading Briefly Halted in Japan: Decrypt
• U.S. Added Just 114K Jobs in July, Unemployment Rate Shoots Up to 4.3%: Coindesk
• Harris odds surge to 43% on Polymarket after Trump’s NABJ panel, reaching $467 million wagered: Cryptoslate
• Morgan Stanley tells wealth advisors they can pitch bitcoin ETFs in a first for a big bank: CNBC

Trakx CTIs Performance

Sources: Coingecko and AlphaVantage

*Return of bitcoin is calculated since 01/05/2020, while CTIs performances were calculated since their respective launch date.
**Includes simulated performance.
***The risk signal is determined according to the historical volatility level, the higher the riskier.

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Disclaimers: No Investment Advice. Index returns and statistics are for illustration only. Index returns do not reflect any transaction costs or expenses. Past performance does not guarantee future results. The information provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the newsletter content as such. Trakx.io does not recommend that any cryptocurrency should be bought, sold, or held by you. Readers shall conduct their own due diligence and consult their financial advisors before making any investment decisions.