Original | Odaily Planet Daily (@OdailyChina)

Author | Fu He How (@vincent 31515173)

Yesterday, affected by the Bank of Japan's rate hike and the Federal Reserve's expected rate cut, the crypto market and even the global financial market fell rapidly. The crypto market fell particularly hard, with altcoins led by Ethereum falling by more than 20%.

The massive selling of altcoins by market maker Jump further triggered panic in the crypto market. BitMEX co-founder Arthur Hayes wrote that a "big guy" was disposed of and was selling all crypto assets, and the community generally speculated that the "big guy" he referred to was Jump.

But is this really the case? Will the market maker Jump also sell the coins it has made for the project, and what is the real reason for this round of market decline?

Odaily Planet Daily interviewed the market makers for this purpose, trying to understand from their perspective the reasons behind Jump's "selling of coins" and the downward trend in the market, the common operating logic of market makers, and when the bull market will return.

The following is the transcript of the interview.

Macroeconomic factors dominate, and Jump’s position changes are not enough to affect the market

Odaily Planet Daily: This round of market crash is quite serious. Can you analyze the reasons more specifically from a macro perspective or from the perspective of the crypto market?

SSS (interviewee anonymous): From a macro perspective, it is mainly due to the appreciation of the yen exchange rate. The Bank of Japan raised interest rates, and the yen exchange rate climbed to around 150. Now it is more than 140, which pierced the Asia-Pacific stock market and caused a certain panic. US dollar assets were also affected to a certain extent. It can be seen from last week's market that panic has spread to the global market last week. Another important reason is valuation repair. The US stock market is currently in a high valuation stage. The crypto market is highly correlated with the US stock market and has higher volatility. Therefore, when the US stock market pulls back, it is difficult for the crypto market to remain unscathed.

Odaily Planet Daily asked: Does the crypto market crash need a trigger? Is the trigger Jump sells coins?

SSS: In essence, it is mainly macro-level factors. Currently, cryptocurrencies are more closely related to macro market regulation and liquidity. Although the market is currently paying attention to the movement of Jump's on-chain assets, this is not a major change that mainly affects the market. For example, the collapse of Three Arrows Capital in 2022, although this is a sign that the crypto market has entered a bear market, it is not the trigger for the bear market. The behavior of large institutions is just an explanation used by the market to explain the change in the market. In essence, the positions of institutions are not enough to affect the long-term trend of the entire market.

And every hedge and quantitative fund has arbitrage and hedging strategies, but due to the particularity of the crypto market, some hedging strategies are carried out in centralized exchanges. There may be a small part on the chain, and most of them are just transfer-in and transfer-out transactions. Therefore, the market actually summarizes and processes single information one-sidedly as the core reason for this decline, which is essentially more related to the macro level.

Odaily Planet Daily asked: As a senior market maker, what do you think of Jump's on-chain asset transfers or conversions into stablecoins, where the crypto assets are its own holdings or tokens used for project market making?

SSS: I am more inclined to believe that Jump's fund movement is its own position for two reasons: First, market-making funds will not be used for staking. The movement of Jump addresses all shows that funds are withdrawn from staking, indicating that these funds are not assets used for market making but its own positions. Market-making funds will be stored in wallets on the chain and monitored by multiple parties, or in market-making accounts opened on exchanges, 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 position adjustments of hedge funds or quantitative funds, which usually include position adjustment, hedging and liquidation operations. This is a normal phenomenon. The market pays attention to the movement of funds on the chain, but the behavior within the exchange is difficult to observe, resulting in incomplete information. There is usually hedging behavior between the chain and the exchange, and only observing unilateral information is incomplete.

Currently, we can only pay attention to the movements on the chain. When we see Ethereum and other assets being transferred to exchanges, we may mistakenly think that it is a dumping of the market. But in fact, this is more likely for hedging, although it may also include some selling. However, the movement of funds on the chain and on the exchange should be considered comprehensively to obtain more comprehensive information.

Future market forecast: Bull market returns in the first half of 2025

Odaily Planet Daily: What do you think of the recent adjustment of the crypto market before the Fed’s rate cut? If the Fed cuts interest rates in September, when do you expect the bull market in the crypto market to return?

SSS: Historically, the market usually adjusts before a rate cut. Like the 2008 cycle, the market generally has a major adjustment before a rate cut. In essence, this crypto market crash reflects an adjustment in future expectations. Trading is actually a response to expectations, so the market will adjust in advance before the expected rate cut is implemented. This major adjustment of global assets may force the Fed to cut interest rates in advance. If the Fed cuts interest rates, the amount of funds in the market will increase, and investors and institutions will look for better targets to invest, which shows that the crypto market is not as attractive as traditional financial markets such as stocks.

Generally speaking, in this round of decline, major global asset classes are adjusting, including gold, which reflects the market's extreme pessimism about the overall short-term expectations. The adjustment range of cryptocurrencies is often much larger than that of many stock markets, including US stocks, which shows that the crypto market is still regarded as a risky asset among major asset classes. Risky assets usually experience an explosive bull market in the middle and late stages of interest rate cuts due to liquidity overflow. Therefore, the performance stage of risky assets is generally in the middle and late stages of interest rate cuts. The current performance of the crypto market also reflects this trend, and it is necessary to wait until liquidity overflows before explosive growth is possible.

If we are optimistic, the bull market may return at the beginning of next year, that is, the first quarter of 2025; if we are neutral, it may be in the middle of next year. It takes a certain process for the interest rate cut to be implemented, and the performance stage of risky assets is in the middle and late stages of the interest rate cut, so the full bull market should come in the first half of 25 years.

Odaily Planet Daily: Under this market situation, what is your company’s investment strategy?

SSS: The current strategy has two main aspects: time and price. In terms of time, the current market situation is similar to the situation in March 2020, when global assets generally fell and Bitcoin also experienced the classic 3.12 event. The core reason for this round of crypto market crash is the change in the exchange rate between the yen and the US dollar. The key lies in the recent response of the Federal Reserve, whether it will cut interest rates in advance or even quickly like in March 2020.

In terms of price, we follow the principle of "no bottom in a bear market, no top in a bull market", so it is difficult to give a clear price range. However, from the perspective of trading characteristics, if the market falls further irrationally, resulting in a rapid turnover of bottom chips, then this area can be considered the bottom area. However, bottom-fishing operations are extremely difficult, because a sharp drop usually only rebounds but does not reverse, and the bottom process will have a process of shock grinding and chip confirmation. Therefore, we will not prejudge the price point, but roughly judge the bottom area through the characteristics of trading behavior, start liquidation operations and do a good job of hedging.

In the current market, when Bitcoin rebounded in July, we had already adopted some hedging strategies before it broke through new highs. Therefore, in this retracement, our short position yield was greater than the loss of long positions. Overall, the key lies in the timing of the Fed and the exchange of chips when the market topped and fell.

Regarding chip exchange, we mainly focus on transaction volume. When the trading volume is significantly higher than in the past, whether it is 4-hour, one-hour or daily level trading volume, it continues to increase significantly for several days, this area is probably the bottom area. In this case, the trading volume is significantly double the past average trading volume, which is an important indicator for judging the market rebound and bottom.

Odaily Planet Daily: Finally, what investment opportunities do you think there will be in the rest of the year?

SSS: I think there are two directions: MEME Coin and AI sector. MEME Coin still has a high trading volume during the decline, and the market still chooses MEME Coin in the decline. AI is the mainstream narrative of major asset classes now, and the narrative of AI at the macro level will continue to the crypto market.