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Summary
In this edition, we cover:
Extreme fear positioning by investors
How crypto has fared vs. equities
Fundamental across sectors within crypto
Things That Make You Go Hmm
Global market capitalisation cooled a further 6% last week, finding support at the key level the market broke through when Trump won the US election.
Fear, Fear, Fear
Since last week, when we saw deep levels of fear in the market, we’ve seen sentiment extended even further given the unpredictable and aggressive US trade posture.
A rich cocktail mix of tariffs, retaliation, and recession are leading investors to panic.
The VIX (the fear index) ended the week at >45, among the highest weekly closes in history signalling extreme fear.
The cost for investors to hedge SPX is reaching levels last seen since Covid.
In crypto, we’re double dipping into extreme fear for the first time ever.
The panic is leading investors to rotate into bonds, sending yields down further. This is timely, given Bessent needs yields down to refinance the $36.56T US debt.
Ultimately, the US need big buyers of their bonds. We see particular economic pressure on China from the US to continue to do so but failing that the Fed steps in.
Countries like China need to stimulate with liquidity because of reasons of stabilisation risk.
In fact, we’re already seeing the gains in liquidity while recession fears are looming.
The USD weakness has contributed as much as two thirds of recent liquidity gains. However, it’s the global liquidity trend is what matters for crypto.
And it’s continued to show financial conditions easing.
The silver lining? Crypto being hyper-sensitive to liquidity is being held up relatively better than equities. Crypto continues to trend higher vs. the Magnificent 7.
It looks like nothing is structurally broken more broadly.
On-Chain Activity
Meanwhile, on-chain, we can also see economic activity is keeping on its upwards trajectory more broadly.
The Dune fundamental index measures on-chain adoption over time, taking into account metrics like transaction fees, transfer volumes, and transaction counts.
Structurally, it appears nothing is broken zooming out.
As we highlighted last week, fundamentals for sectors like stablecoins, LSTs, and lending are going from strength to strength.
Other pockets of growth include, where the total market size of RWAs on-chain is at record highs ($9B).
Meanwhile, DEX derivative platforms are eating more market share from CEXs as they offer fully composable perp systems that have faster listing processes and comparable latency.
So overall, it appears crypto slump is driven more by the macro uncertainty, and less from the fundamentals.
Yet, it doesn’t mean the outlook will necessarily be smooth sailing. Investors will be looking for trade clarity that will enable a bright outlook for crypto.
Recent price moves are considered normal gyrations of the market and crypto is no exception.
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