Original | Odaily Planet Daily (@OdailyChina)
*Author | How is it, *@vincent 31515173 ）
Yesterday, the encryption market, and even the global financial market, continued to decline under the impact of the Japanese Central Bank’s interest rate hike. The decline in the encryption market was particularly severe, with AltCoins, led by Ethereum, falling by more than 20%. Market maker institution Jump’s massive selling of AltCoins further triggered panic in the encryption market. Many people regarded Jump as the ‘real culprit’ behind the current downturn in the market.
But is this really the case? Will the market maker institution Jump sell the coins of the project party in hand, and what is the real reason for the decline in this round of market? 01928374656574839201
Odaily Planet Daily attempts to interpret the reasons behind the Jump “selling coins” and the downward market from the perspective of market makers, as well as when the Bull Market will return, through interviews with the market maker community.
This interview is an anonymous interview, and the interviewee is represented by SSS. The following is the interview record.
Macro factors dominate, and the changes in Jump’s Holdings are not enough to affect the market
Odaily Planet Daily: The big dump in this round of the market is quite serious. Could you analyze the reasons more specifically from a macro perspective or the perspective of the encryption market?
SSS: From a macro perspective, the main reason is the appreciation of the Japanese Exchange Rate, the interest rate hike by the Japanese Central Bank, the Japanese Exchange Rate climbing to around 150, and now it’s over 140, breaking through the Asia-Pacific stock market, causing some panic. The US dollar assets are also affected to some extent. From last week’s market data, it can be seen that the panic has already spread in the global market last week. Another important reason is valuation repair. The US stock market is currently in the overvaluation stage. The encryption market has a strong correlation with the US stock market and higher volatility, so the US stock market pullback, and the encryption market is hard to remain independent.
Odaily Planet Daily asks: Does the big dump in the encryption market need a cause? Is the cause Jump selling coins?
SSS: Essentially, it is mainly influenced by macro factors. Currently, there is a stronger correlation between Cryptocurrency and macro market regulation and Liquidity. Although the movement of on-chain assets followed by the market is currently being observed, it is not the main cause of significant changes in the market. For example, the explosion of Three Arrows Capital in 2022, although it is a sign of the encryption market entering a Bear Market, it is not the trigger for the Bear Market. The behavior of large institutions is only an explanation used by the market to explain the changes in the market. Essentially, the holdings of these institutions are not enough to affect the long-term trend of the entire market.
And every Hedging and quant fund has strategies for Arbitrage and Hedging, but due to the particularity of the encryption market, some Hedging strategies are carried out in Centralized Exchanges, with a very small portion possibly occurring on-chain, mostly just transfer transactions. Therefore, the market actually oversimplifies the core reasons for this decline based on individual information, when in essence, it is more related to the macro level.
Odaily Planet Daily Follow-up: As a senior practitioner in market making, do you think the behavior of Jump on-chain transferring assets or exchanging them for stablecoins, where encryption assets are their own Holdings or Tokens for project market making?
SSS: I am more inclined to believe that the capital movement of Jump is its own Holdings, for two reasons: first, the market-making funds will not be used for stake. The movement of Jump’s Address indicates that the funds are withdrawn from the stake, indicating that these funds are not assets for market-making but its own Holdings. Market-making funds will be stored in the on-chain Wallet and monitored by longer, or in the market-making account opened by the exchange, which will also be monitored in real time by the project party and the exchange.
Secondly, the recent adjustment of the market has led to the adjustment of positions in hedging funds or quantitative funds, which usually includes portfolio adjustment, hedging, and close all positions operations, which is a normal phenomenon. The movement of on-chain funds is followed in the market, while the behavior within the exchange is difficult to observe, resulting in incomplete information. There is usually hedging behavior between on-chain and exchange, and observing only one-sided information is incomplete.
Currently, we can only follow the on-chain trends. When we see Ethereum and other cryptocurrencies being transferred to exchanges, we may mistakenly think it is dumping. However, it is more likely to be hedging, although there may also be some selling components involved. The capital flow of both on-chain and exchange should be considered comprehensively to obtain more comprehensive information.
Future Market Outlook: Bull Market Return in the first half of 2025
Odaily Planet Daily: How do you view the recent adjustment of the encryption market before the Fed’s interest rate cut? If the Fed cuts interest rates in September, when do you expect the Bull Market of the encryption market to return?
SSS: Historically, the market usually adjusts before interest rate cuts. Like the cycle in 2008, the market generally experiences a significant adjustment before the interest rate cut. Essentially, the big dump in the encryption market this time reflects the adjustment of future expectations. Trading is actually a reaction to expectations, so the market will adjust in advance before the interest rate expectation is realized. This significant adjustment in global assets may force the Federal Reserve to cut interest rates early. If the Federal Reserve cuts interest rates, the amount of funds in the market will increase, and investors and institutions will look for better targets for investment. This indicates that the encryption market is not as attractive as TradFi markets such as the stock market.
In general, during this round of decline, global major assets are adjusting, including gold, which reflects the market’s extremely pessimistic expectations for the short term. The adjustment of Cryptocurrency is often much larger than many stock markets, including the US stock market, indicating that the encryption market is still considered a risky asset in the major asset category. Risk assets usually experience an explosive Bull Market brought about by Liquidity overflow in the middle and late stages of interest rate cuts. Therefore, the performance stage of risk assets is generally in the middle and late stages of interest rate cuts. The performance of the current encryption market also reflects this trend, and an explosive rise is only possible when Liquidity overflows.
If we are optimistic, the Bull Market may return in the early next year, i.e. the first quarter of 2025; if we are neutral, it may be in the middle of next year. The landing of interest rate cuts will take a certain process, and the performance of risk assets is in the middle and later stages of interest rate cuts, so the full Bull Market should come in the first half of 25.
Odaily Planet Daily: What is your company’s investment strategy in this market?
SSS: The current strategy mainly has two aspects: time and price. In terms of time, the current market situation is similar to that of March 2020, when global assets generally fell, and BTC also experienced the classic 3.12 event. The core reason for this big dump in the encryption market is the change in Exchange Rate between the Japanese yen and the US dollar. The key lies in the recent reaction of the Federal Reserve, whether it will cut interest rates in advance or cut them quickly as it did in March 2020.
In terms of price, we follow the principle of ‘Bear Market does not speak of a bottom, Bull Market does not speak of a top’, so it is difficult to give a specific price range. However, from the perspective of trading characteristics, if the market further irrationally declines, resulting in a rapid turnover of bottom chips, then that area can be considered as the bottom area. However, catching the bottom is extremely difficult because sharp declines usually only have a rebound and do not reverse. The bottoming process will have oscillation grinding and chip confirmation. Therefore, we will not predict price points, but roughly determine the bottom area through trading behavior characteristics, start closing all positions, and do Hedging.
In the current market phase, in July when BTC rebounded, we took some hedging strategies before it broke through the new high. Therefore, in this pullback, our Short Position’s return is greater than the loss of long positions. Overall, the key lies in the timing of the Federal Reserve’s node and the chip exchange situation during the market’s peak decline.
As for chip exchange, we mainly follow the volume. When the volume is significantly higher than the past, whether it is on a 4-hour, hourly, or daily basis, and continues to increase significantly for several days, this area is probably the bottom area. In this case, the volume is significantly higher than the average volume in the past, which is an important indicator for judging the market rebound and bottom.
Interviewer: Finally, what investment opportunities do you think are still available for the remainder of this year?
Interviewee: I think there are two directions: MEME Coin and AI zone. MEME Coin still has a high volume during the downturn, and the market chooses MEME Coin in the bear market. AI is the mainstream narrative of major asset classes now, and the narrative of AI at the macro level will continue to the encryption market.
