Did This Crypto Cycle Just Come To An End?

Bas Nation we've got an emergency live stream so we only do this when either something really bad has happened or something really good has happened so we've had too many good things recently yeah so I went on vacation last week I come back to these charts David what they're they're calling this they're calling this Black Monday vies Monday all right so can you get me up to speed because I haven't paid attention to this I just started looking at it this morning can you start get me up to speed on what the heck happened I haven't seen one of these in a long time so the markets have really been rolling over

for like two weeks now the equities Market the tech Market it started off with just like Nvidia uh just selling a lot of tech stocks selling people rotating out of the AI stocks that had pumped when was this like last Friday the end of last week been this has been the last like two weeks of of traditional Trad equities Market discussions of just like oh like we we're having a pullback we're having a tech stock market AI pullback but that pullback kept on pulling back uh and it hit a an inflection point over this

weekend uh and now has kind of impacted just broad markets Global markets so all Global markets this is not just a crypto thing this is if you are in the money in the world of money and finance if you world in the world of just like equities traditional markets whatever you want to however you want to say it like you're paying attention to this uh the uh spy the American equities Market is down at 4% Taiwan down 88.5% South Korea halted the entire Market the the Turkish stock market if you pay attention to that is

down 7% uh almost $2 trillion dollar is gone from the United States equities Market uh and it's being called like one of the worst single day drops since the covid dump in March of 2020 uh and so just ricocheting shattering uh uh echoing throughout like all Global markets everywhere and it all starts with the Japanese nay apparently uh and so what happened not terribly long ago last week really uh was that a suffering slow Japanese economy uh has created just instability

in in the stock market in the Japanese nay nay is their their um their S&P right it's their it's their stock market uh and as a result of this thing called a basis trade which is something I was learning about uh this morning between the United States market and the Japanese economy since uh the Central Bank of Japan was offering 0% interest rates they have still been in a Zer policy there's been a basis trade because the uh interest rates in Central America are at 5.5% so capital is free

in Japan but it was expensive in the United States uh and so people would borrow money at at very low cost from Japan and then they would buy American equities bonds just invest in the American economy uh but last week the Japanese Central Bank raised interest rates by 0.25% which is not that much uh but when people have leveraged up a basis trade in order to maximize squeeze the maximum amount of juice out of that trade that 0.25% increase in Japanese interest rates uh has Unwound a bunch of

Trades so we're watching leverage in the traditional stock market unwind which impacts our equities markets uh which then Cascades all the way down into what we feel in the crypto markets which is just like an absolute hurricane because in the grand scheme of things were kind of tiny uh that's how I would explain it uh in a very short synopsis I'll explain a little bit better in a second uh but it's the single big move ever in the vix term so vix is the volatility index when vix goes up that's bad uh the last big spike was of course covid uh so it rises above 50 and it's

like kind of a a 50 is just like a self-referential number rises above 50 for the first time since the co dump uh and whenever vix is kind of like an indicator of a Black Swan like if you want to determine what is or is not a Black Swan you would look at the vix uh vix spiking is like something happened that no one was account for there's kind of this meme that there's like always hidden leverage in the system and we are now very rapidly discovering that it was in this basis trade between uh the Japanese economy and the American economy okay so I I have a few questions

I'm not exactly sure where to start but like this is my impression of where I left things on vacation I was barely looking at things but like on Friday there was like a week um jobs report like there was the the word recession back in the the air there was like felt like the market was giving back some gains I was like okay normal course of events normal of the market and I monitored things on Saturday but then Sunday hit okay this was Sunday the 4th and uh looking at last night yeah last night 12 12 hours ago yeah ethereum down like 25% ethereum dipped like close to 2,000

uhuh like I don't even know like on binance my understanding is it dipped to 2,000 I'm like what is going on like what on Earth is actually going on and like seeing this uh play out I I guess in the vix you could sort of see this from a VI indicator this is similar to 2008 this is similar to the the covid March and this is what I was feeling David I was feeling oh my God this feels a lot like March 2020 at least in terms of crypto and of course trafy markets don't trade 247 right so crypto is a

leading indicator on the weekend during Banker hours during the weekends that those guys take off crypto continues and so you see uh Bitcoin off ethereum like particularly brutalized yeah brutalized absolutely brutalized and I was trying to make sense of what was actually going on of course crypto Twitter is panicking you know um like complete complete turmoil from that perspective but and and then the the Nik which was trading on Sunday because you know Japanese time zone hours that was off 12% so like

something is rotten something is like not working in the existing system and you're saying it all comes down to this basis trade or is that the main depend it depends on who you are in the market I think if if you're in the crypto Market we also have to go look at Jump capital and ask why the hell they were just offloading tens of millions of dollars of eth into a very illiquid Market on a Sunday like that's also going on that's all but that's just for us crypto people we do have to ask that question I think everyone is trying to like look into all of these different

inputs into the market uh and this is a meme that I think is the most viral meme of the last like uh day last 24 hours uh and it's the uh it's the um I don't know thank you meme it's like the be honest meme yeah and this person is trying to is trying to like get signal from like what the f is going on in this market like it's the jobs report it's a weakening economy uh and then they're like be honest and then they're like okay no it's it's the Yen carry trade and the person replies no be honest and the person says I don't know and the person is thank you thank you there's

like other things going on like Kay Harris is now uh encroaching on Trump's Victory and Trump is being interpreted as the pro markets candidate and so maybe the markets are actually pricing in uh a more like not an assured Trump Victory and so that that could have sent uh the stock market tumbling there's leverage in the system who knows there's like a bunch of things rumors of War I even saw rumors of War like Iran and Israel are going to war there's like a bunch of things going on all at once on Twitter there was like a signal of um

the The Dominoes located the like pizza restaurants located close to the Pentagon where like uh you know people track this apparently and like um pizza delivery orders were spiking which means like maybe the the Pentagon is huddling so there's like rumors of war types of things in the air as well but but let me understand this Japanese thing because maybe people don't really know where this is this selloff is coming from but I'm not sure that we can call it at this stage a Smoking Gun but it seems like there's something rotten with this um Japanese

carry trade you gave this to us in the intro I just want to make sure I understand this yeah let's down on this yeah oh yeah let's double down on uh what they're like what are we calling this um Tren carry trade yeah okay so how does this work what was going on what no longer works like how did this piece of the puzzle break okay so uh because of the devaluing of the Yen uh because the economy of uh Japan like I don't know why they're the the economy of Japan is

faltering and then also they're raising interest rates but the yen is going down the yen is devaluing inflation is going up and so as a result of the devaluation of the Yen the Central Bank raises interest rates in the same way that the American the United States Federal Reserve raised interest rates postco after a bunch of cast injected into the economy cause inflation uh we all know that inflation has been rampant and has really put a lot of economic pressure on uh like the lower half of the American economy honestly honestly like more even

larger than than the lower half um and so as a result like the the Japanese central banks like we don't we don't want to have our people subjected to inflation inflation is bad so we're going to raise interest rates so the rates in uh Japan Central Bank of Japan uh the boj right went up was it at zero or is it something very low is that zero and it went up by 0.25 25% yes okay and that caused a 20% red candle for ethereum that's on Sunday that's correct

Theus the Japanese the entire Japanese stock market market to go down by 12% okay and because what was going on or the carry trade is at Z % rates from boj people are able to borrow the Yen for nothing and then they're able to buy an asset outside of Japan whatever that is United States 10e treasuries like Apple stock Bitcoin yeah crypto and then something else happens and then they profit from this trade because they're they're borrowing assets go up they're borrowing at z% they're borrowing free money and they're investing Longs so a.

25% increase starts to wreck that trade yes I guess I mean it's such a slight increase though it's a slight increase but it wrecks it in more ways than one so like a your costs of borrowing are going up uh and so now your loans that you have are you're paying the highest interest rate on and you might think that that 0.25% interest rate is like okay it's not that much higher and you're kind of right uh but also because they're trying to strengthen the N the Japanese Yen that is the denominator that all these loans are marked in so

all these loans are they're trying to make the Japanese Yen go up in value which is what the loans are denominated in and so not only are the costs of borrowing going up but the actual value of the thing that you have to pay back is getting more expensive too so it's a double whammy and then you can also add on the fact that they they might expect that the interest rate of the uh Japanese end is also going to go up higher than 0. 25% like they're not stopping there uh and so like imagine if you imagine if you're are very sizable trading firm or you're just pulling out

a ton of loans we all know that prices are determined on the margins and so they are ma people are maxing out this leverage trade it's called an unwind for a reason and so it they people the marginal rational economic actor will take this risk up to the maximum to the point that a very small change in interest rates will actually impact the market and we always like I said hidden leverage in the system everywhere uh and so 0. 25% it increases the value of the NK a lot of people feel

that even if it's a little bit it increases the borrowing power uh it decreases borrowing power it increases like uh the cost of capital and then it's also indicative of further of all of this getting even worse further I get it so that there was this point of Leverage in the system it's been in the system for a very long time it's just com you know like this this is why compound people are taking more and more leverage the longer that there is a zero interest rate policy in Japan and this is why markets take the the staircase up and the elevator down it's like at a certain point there's some Tipping Point that that's reached and then suddenly a0

25% raise causes a c Cascade of liquidation this is like bad leverage in the system and it's all withdrawn sort of at the same time so there's mass panic Nik is down 12% crypto is down like 20 uh plus percent. C can we look at the crypto charts so we've seen some of the trafi gore charts uh so let's recap what actually happened with crypto here yeah so uh Bitcoin daddy Bitcoin is set to close its worst week since FTX uh so that's our biggest red candle since the FTX event uh so congratulations to

everyone who has experi both um it's only Monday it's only Monday yeah um in the world of uh liquidations I'm going to skip over this tweet uh we'll come back to jump in a second but in the world of uh liquidations over 1.1 billion dollars has been liquidated from the crypto markets uh in the last 24 hours uh 275,000 individual addresses have gotten liquidated uh just because prices went down so far so fast yesterday I remember tweeting out when uh eth eth went from

like 2800 down to like 2600 and I was like H you know I'm just gonna s out a funny tweet wake me and I said Wake Me Up When eth hits 1900 like a devastatingly low number that we were never going to reach of course and 45 minutes later we were down to 2200 I was like yo no I'm just kidding because you tweeted uh and so this is what happens in crypto we like if you have been if you've seen at least one cycle you kind of know that this can always happen the

bottom can fall out of the crypto markets very very fast we can get very IL liquid very very fast uh so here's a tweet from woo blockchain according to binance binance the price indicator eth suddenly plummeted to $2,100 and then rebounded the amounts of Liquidations in one hour reached 370 million US dollar so 37 3, 3,770 million US Dollars uh got changed changed hands inside of one hour uh wow okay well this goes back to a

question I have for you which is it did seem like on Sunday when all of this chaos was like when the market was like realizing what was happening that uh ether in particular was more affected right I saw I saw ether versus Bitcoin it was like the difference was like 25% down or something like that in 24 hour or even like layer twos and bit ethereum related ecos it appears to have hit ether particularly hard and is that where this jump capital um like trading comes into the story here for some reason at the same time

that we are having this unwinding basis trade between Traders arbitragers uh arbing the interest rates between Japan and United States completely unrelated to crypto markets jump has been dumping like clips of 10 million dollars of ether into the market like like hour over hour over hour just like pummeling the eth price everywhere uh and I don't know how much in total that they have sold but it's in the hundreds of millions of dollars well this is a tweet here as a jump has been unstake unstaking likely dumping 500 million eth

for the past two weeks and there's some onchain evidence uh like uh detailed in this cheat in in this tweet so 500 million is this like all of their eth like how much do they have left it is generally assumed by everyone that I've asked that like they are basically have fumes of their ether left maybe they have like 5% of their total ether left but jump has exited their ether position and it's ether in particular it's not all crypto assets it well it could be Bitcoin it could also be their salana positions uh but you just don't have as

much transparency uh as we have in ethereum when people go and they they dump eth into the market on etherium like addresses are tagged like there's so much transparency in the ethereum ecosystem there's a similar amount of transparency in salana but um it's not just not as much it's just not as mature and there's and there's Al also a lot less um soulle liquid on chain on salana than there is on ethereum in eth you dump it in OTC markets behind the scenes dump elsewhere yeah you dump it on binance you dump it on OTC uh but like if you want to get

but eth is is like meaningfully liquid on chain and so we can all watch we're all watching D like e like uh just uh jump just nuke the price of eth as they sell like clips and clip they're also sending it to binance as well um maybe that actually is where they've they've uh dumped most of their eth but they're sending it like to binance on the hour every single hour so you like they're going and then they're like liquidating and saying into to binance and they're liquidating uh and the big question is like why now yeah why now so so we we

know it's certainly uh ether that they're selling we don't know whether it's just ether they're selling their other crypto assets we can't necessarily see that on chain but so let's assume they're just like selling a lot of their crypto positions rather than just focusing on ethereum that would be more consistent with I think the the evidence right I I don't think they're saying F ethereum in particular necessarily I don't know why they do this on one particular Sunday unless they had word that like ethereum was you know had some sort of catastrophic um bug or something like this right so like are we just assuming drum jump is liquidating their

position because they are starting to see how B I mean they're Traders right they're starting to see how bad things are getting on the Mac just trying to front run that I think there's a there's one valid uh theory about it there are other people drawing attention to the fact that jump is actually getting probed by the cftc uh and so jump is in some sort of like legal trouble with the cftc maybe this is a Fallout of that uh maybe like uh main jump so there's jump and then

there's jump crypto and maybe jump is uh taking a a position in the market as a result of the Decay as you said and as a result they're like informing hey jump crypto like like liquidate your crypto like let's go risk off uh and so they're like dumping their eth uh and so as a result of all of this like ether just gets absolutely pummeled above and beyond like all the other assets uh in inside of the inside the crypto markets so my reaction on Sunday David was um at first I was like oh this feels like 2022 again right and we said some big selloff

events in like May and you remember 3 hours Capital it kind of hit right uh and then obviously FTX like that Wasa FTX yeah the most pain and recent memory so it felt sort of like that pain and yet it actually felt like more like a date that was uh further back than that it felt in my mind a bit more like um March of 2020 do you remember March of 2020 this is podcast was getting started during March of the 2020 during the march dump the covid Black Tuesday uh it was Tuesday yeah and ether ether was down

60% in the 24-hour candle Ryan and I were recording the second ever Bank yeah and that that felt really bad and the reason it felt bad like the reason I considered what Sunday you felt like and it kind of that made this Black Monday bleed over and 2020 rather than 2022 is because it felt very like 2020 it felt very exogenous to crypto yeah so it wasn't SPF dquan Shenanigans it was some adjacent macro Black Swan that's

happening that is just like completely outside of the control or apparatus of of crypto so was that and also the ferocity of the dump right like a boom candle yeah correlated with the other like um you know macro assets of course so it reminded me of 2020 uh how did it strike you like what are the other dates of this level of dumpage that that that come to mind for you 2020 was definitely because of the exogenous factor I think 2020 comes to mind uh but I was just in

inside of the bank list Discord this this morning everyone's in like one of the indicators of like how you know it's kind of like close to the bottom is that everyone is on Twitter everyone's in Discord everyone's unhappy and so as somebody who has experienced these dunks numerous times and gotten liquidated in at least a handful of them uh I have I have like Vibes to share you know like it's all gonna be okay uh I think the first ever big dump that I remember uh if I we don't want to go over to this chart like I have it pointed out in that screenshot that you have shown there but

it was it was this one in Bitcoin in when is this November of 2018 so after Bitcoin has fallen 67% and it hits it bit the Bitcoin price after 2018 it hits $20,000 for the first time and then it falls down to 6,000 and it hits 6,000 in February 2018 it goes 20,000 to 6,000 in February then it hits 6,000 again in April bounces back up to 10,000 it hits 6,000 again in June it

bounces up to 8,000 it hits 6,000 again in August bounces up to 7,000 and then it stays at 6 to 7,000 between September and November and I'm like I'm like pH like 6,000 it's holding up so well like that's that's that's the bottom like it's just like I'm just going to buy all I'm gonna use all my remaining powder of which I had none because I was like already positioned anyways uh but I was like but like ding into these crypto markets for my first ever bare market and I'm like oh you know what 6,000 not so bad and then in November of 2018 in a

very short window of time it goes from Bitcoin goes from 6,000 down to 3,000 get it loses another 50% and that was my first that was like my first like oh my god what have I done is this you getting liquidated somewhere on this chart did thaten I don't think so any leverage that got washed away I think I'm just learning to use maker Dow in this time yeah and so I didn't have maybe I had like maybe I was on a dydx position but you don't hold dydx positions for very long I almost got wrecked during this whole like 2018 no I think it was more

like 2019 I almost got wrecked with some Lage I had I did not I guess number two yeah that was probably more like during Co I can't remember I was like that was a CO Dum yeah you like man you remember these because they're impressive on your soul how painful they are you are looking because you I remember the first time I got liquidated maybe maybe it was I can't remember the first time I got liquidated because there was two times that which that implies uh it's just like you realize

this very powerful thing about leverage that like you can wait until the very end but if you unwind at the very end you have to unwind the whole thing to make any meaningful amount of difference on your position yeah like you have to sell like in order to protect your CDP your loan your position you have to sell so much of your actual principle to protect yourself at all so it's so painful so you're at the very end and you're like well what's the point in even defending this position I'm just going to like clench my teeth and hope

that this is the bottom yeah uh and I I remember that I think that a lot of people felt that feeling in the crypto markets over they just learned about leverage for the very first time it is the worst feeling imaginable when you're looking at you got like a liquidation price you're like oh I'm I'm going to get liquidated at eth at 400 and then it like drops down it's the middle of the night and it like drops down into the 400 you're like oh [ __ ] like what do I do oh I have to put more like eth on the line in order to back that loan and how far do you push it is is a very bad position to be in when you have like

margin in these types of Black Swan liquidation events is that why you tweeted if you didn't get liquidated today congrats you pass the test yeah uhhuh there's there's like a just a come to God moment I think what everyone kind of experiences just like it's just you and God at that it's just you two Jesus Take the Wheel you know I got nothing yeah but congratulations to everyone who is a not on Leverage I think you guys are just chilling sorry about your spot positions but like they're whole people who are on Leverage and did not get liquidated congrats you

passed the test uh people who are on Leverage and then did get liquidated I'm sorry it hurts we will rebuild yeah this is how you learn your job right now is to survive just survive right now and live to fight another day if if at all you can um you got a section on ETFs so what about ETFs is relevant here David uh let's see ETFs uh okay so we are watching uh the Bitcoin ETFs have all-time highs in volume not maybe not alltime highs uh 20 minutes into the trading session of today's uh Stock Market trading uh 1 three billion dollar

in Bitcoin ETF volumes uh so that's that's quite a lot uh Eric balunis put out a tweet saying that like well High ETF volum volumes is actually just like everyone being scared but like the whole stock market scared so I feel like that was like well yeah have you seen the blood in the streets sir uh and like high volumes is kind of what you want because you want High liquidity on both directions inside and out uh we don't have any data today because uh the Stock Market trading day is all over but it will be interesting to see flows who are

the ETFs net buyers or net sellers of these crypto assets uh we'll see oh yeah how how how strongly do they like how Diamond hands are they is kind of a question like you know those uh bitwise commercials about ethereum being like open 247 aren't going to hit quite the same way when you're down on your 401k about 25% right now it's just like unfortunate timing I would say for ethereum of like it two weeks ago got the ethereum ETF and so you're like Hey Dad you can now buy ethereum you're 401K

two weeks later he's down like 25% it's so classic dude just like e gets it ETF and the whole entire industry loses 25% like it's the most classic asset of all time and perfectly cursed okay so there's a few other things that I want to talk about you got to ask the question how did defi do we got a to look at we got maker Dow to look at gearbox is a newer lending protocol that's on Leverage how did gearbox do uh I'm going to take over the charts and we're we're going to look at ebtc we're going to look at coin we're

going to look at salana uh and then we're going to talk about the calls for a Fed pivot because now that something quote unquote broke we we get our pivot now right um that's what everyone is asking for so there's a bunch of other conversations we're gonna get to all of them and more but first a moment to talk about some of these fantastic sponsors that make the show possible if you want a crypto trading experience backed by worldclass security and awardwinning support teams then head over to Kraken one of the longest standing and most secure crypto Platforms in the world Kraken is on a journey to build a more accessible inclusive and fair Financial

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like uh you know March of of 2020 the question I'm looking for a silver lining on here here and my question is like but how did defi hold up was dii okay did we liquidate in a fair and efficient way did everything work according to a plan or were there some troubles so if you remember uh Ryan the last time the first and I think last time that meaningfully broke was during the covid dump of Black Tuesday of March of 2020 I think this is

like di dep pegging yeah uh maker Dow uh loans CDP loans the things that are backing and renting and producing D in the first place uh were getting paid back with zero collateral because uh as an ecosystem as a blockchain ethereum had never experienced High transaction fees before at that level like we had just come off of the one guay Paradigm for those that don't know ethereum gas fees on ethereum were one guay until 2019 where in 2019 they hit two gay for the

first time and then it hit three gay and then it hit five gay and then things started to like never actually go back down and we were somewhere between like five sometimes 20 guay astonishingly for months uh but that was a new paradigm and like ether was like $100 so you're still talking about like one to five cent transaction fees uh but we had established the Paradigm of gas fees and congestion on ethereum then the co dump happened and gas jumped up to

700 which applications were not ready for that people didn't know how to think about that that was just like unheard of a level of demand for ethereum Block space and as a result of that maker Dow had cdps that were paid back with zero collateral as in they were needed to be liquidated but because the liquidation transactions to pay back the cdps the ones that were supposed to go through they didn't have they weren't accounting for very high gas fees and some people like arbitragers figured it out and so they could send a very high gas