ROLLUP: Crazy Markets | Prediction Markets Bad? | Zora Release | More Gensler Ls | Trump’s DeFi Sons

Bankless Nation has been quite the week. Crypto sentiment is pivoting very bearish this week. Price drops, liquidations. You're not bearish, David?

Not bearish.

But this is uh some pretty dark days, it felt like on Sunday and Monday earlier this week. We haven't seen this kind of activity since uh 2022. What do we got on the weekly roll up today?

We're gonna cover what the hell happened in the markets over the weekend and also what's happened since then. Are we out of the woods or are we just getting started? Is the bull market over? Uh, or and is there more to be fearful of, or what's going on what the hell's going on? There's a lot of different takes out there. Uh, both good indicators and bad indicators. We'll talk about them both. Uh, but then we're also gonna talk about prediction markets because we've talked about prediction markets every single week in the weekly roll up for a long time now. And now it has been too good in the prediction markets land. So some of the bears are coming out to raise their heads, including Elizabeth Warren is one of them. Uh, and so we'll talk about that as well.

Got some good news on the week, not just bad news uh in in markets. Gary Gensler's taking some more L's on the week. His budget is getting slashed.

That's

So

all you can take.

Yeah. Also, we got some big releases on Zora to talk about. And uh Trump's kids, including Donald Trump Jr. and Eric, are discovering their true passion. It's actually for DeFi. They call it their true love this week. What is going on with that?

Yeah. They're discovering a brand new hashtag. Do you see their hashtag that they created?

I did not actually.

Be hashtag B Defiant. Be defiant.

Be defiant. Okay.

Be defiant.

All right.

That's the hashtag that they're creating for DeFi.

Thanks for thanks for the meeting, Trump boy.

Thanks, guys. Nailed it. All right. Uh, as we get into uh the markets, we're first want to talk about our friends and sponsors over at

All right, David. Let's let's talk about this bloody Sunday and into Monday. We're gonna do this in two parts, I think. So first, let's talk about what happened on uh Sunday and Monday, and we're gonna look at some chart gore. And then let's talk about what happened since that time up until the time of recording. So, David, I got some charts for you. Ready? Hide your eyes, avert your eyes.

oh wait, no, it's going up.

Yeah. Okay. So this first chart we don't typically look at on the Bank of this weekly rule up because you only you only look at it when real like really bad things are happening. Okay. So the the uh the chart is going up, and that's because um the market is panicked. This is the VIX chart. And these spikes are basically panic, volatility in the market, the extreme kind of like uh fear type scenarios. And you see the spike, this happened on Sunday and into Monday. Um, this is as large as the spikes on 2020, COVID, right, March 2020, and then back to 2008, financial recession. So it was on that level, that order of magnitude, with respect to how fearful the market was earlier this week. And we could look at the crypto charts too here, David. Look at these spikes down. This is uh Bitcoin, thanks to the Kraken charts. This is Bitcoin spike down. We haven't seen one of these red candles in a very long time. This is uh Ether. Look at this.

Yeah, that's bad. I get Ether on Saturday, Sunday was just going down all weekend as people were we'll talk about this as people were unwinding the carry trade that we'll talk about. Uh and then ether goes from like 3,400 down to 3,000, down to 2,800. And I'm like, oh, it's one of those times where just like, you know, bearish, really bearish pullback, prices are dipping, red candles are everywhere. But I've seen this before. Like, I'm a veteran, I know what this looks like. And so I just like tweet out.

Pullback.

I'll see you like wake me up at 1900. Like, I'm not gonna bother until I see 1900. And I shit you not, 45 minutes later, it had taps 1900. I'm like, whoa, that's that got there really fast.

Were you excited about this? Or were you

It was just like, oh man, some somebody is getting carted out. Somebody like people are getting liquidated left and right.

when I I mean I don't I don't remember the last spike like this? I mean, probably 2022.

FTX.

But we kind of uh that that was so insular to crypto. We sort of knew what was going on. This is like

this unseen enemy.

The last time there was an exogenous market event that caused liquidations in crypto was COVID, was the COVID crash.

Okay, so we uh we're all trying to unpack this on on Monday to figure out what actually happened on Monday and into Tuesday. So what are the reasons? Why did we get this spike down? Why did the VIX uh spike in the way that we just talked about?

There's definitely a confluence of factors, and we'll we'll talk about all of them. The number one that is being ascribed to is the unwinding of the Japanese yen carry trade. And so the central bank of Japan has been holding a zero percent interest rate for quite a long time. Uh meanwhile, over the last two years, the United States Federal Reserve has increased interest rates up to 5.5%, which means if you have any money inside of the American economy, you can get a risk-free 5.5% in United States Treasuries. If you can borrow money from Japan at 0% where their interest rates have been for the last forever, you can borrow free money from Japan and then you can get 5.5% in the American stock market for free. For free. And so 5.5% is the base when people are buying bonds. Uh, somebody comes into the bond market and then that pushes the marginal person out of the bond market who wants a little bit more risk. So it goes into the equities market. It goes into Nvidia stock, it goes into crypto. Uh and so a lot of this, um, a lot of the market was holding up this leverage, this winding up of leverage as people were juicing this carry trade between Japan and the American uh economy. Uh the Japanese central bank decides to raise interest rates by 0.25% uh because of the weakening yen. And they do not want to have the yen inflate because we we have seen the pressures that has been put on the American individuals and on just global individuals from inflation. Inflation, bad for consumers. Uh, so the Japanese central bank doesn't want that. And so they are experiencing inflation in the yen, so they decide to raise interest rates, which squeezes the uh ability to run this carry trade. So when it goes up by 0.25%, like the yen actually appreciates, and that's the denominator that everyone has been borrowing from in Japan. And so all of a sudden, when the yen goes up in price, everyone's been borrowing and then shorting the yen, basically. And so not only is your cost of capital going up, but like now you have to repay it at a higher loan. Uh and then it's also indicative of like, well, if they keep on raising, like this is going to get squeezed even farther. So people just unwind the trade, which causes mass selling in the American stock market, which hits risk assets specifically the hardest. That's like the number one reason why people are saying that this happened.

Yeah, it's it's crazy that just like a 0.25% raise causes this cascade of factors is because

Margins.

it's so levered up. Um so right now the Bank of Japan balance sheet is is larger than any country's GDP at 127.5% of GDP, right? And so like as you're saying, when you unwind this trade, basically you have to go buy yen in order to pay off your loans. And in order to buy that.

It's almost a short squeeze on the end.

Yeah, you have to and you have to sell your other assets. You have to sell your your treasuries and like mostly it's not treasuries, it's like uh risk on assets because we've been in risk on seasons. So you you sell your crypto, you sell your NVIDIA stock. So we saw that unwind happen uh quite rapidly on Sunday and Monday and the market kind of waking up to this. But that's not the only reason. What else we got?

Uh the US economy has also got hit with this like not great jobs report. Uh so 71,000 uh fewer jobs than what was estimated came in in this jobs report. And also unemployment has been trending upwards. It's at 4.3%. Uh and when unemployment trends, it trends hard. It's like a hard thing to reverse. Uh and so when we notice an upward trend in the jobs report, uh investors are like Rutro. Um, we've been saying this R word, this recession word for like three years now. Uh and so like people are real sensitive to it. Uh, and we are now it's starting to finally rear its head potentially with this jobs report. Uh, you get you get that paired with like some other market signals, like Warren Buffett selling half of his Apple stock, like just dumping all of his Bank of America stock, sitting on almost $300 billion in cash.

Cash.

Everyone watches Warren Buffett. Like we need to see what he's up to. And when Warren Buffett is on cash, like everyone knows it. And so it just adds even more jitters, I would say.

Yeah.

It's not just that. There's also just like uh escalation in the Middle East. There was this Hamas leader that was uh assassinated inside of Iran, inside of Iran's territory, which is, you know, an affront to Iran. Uh no one knows who actually did this assassination, but like Iran is like we're uh it's obviously Israel. Uh and so like they have been posturing with some very big language towards Israel. That actually didn't come to pass this week, but like nonetheless, that's what the like markets don't like this level of uncertainty.

Just jittery, jittery.

Jittery left and right. Yeah.

And like it's just like a little spark can c like cause all of this volatility. So it's point two five rays, or it's like an assassination of a political leader. And it's like it's not like this hasn't happened historically, right? So like an assassination from like Franz Ferdinand uh in Serbia for World War I.

So it's not irrational necessarily for the market to behave this way. But uh g go on. What else we got?

Uh also just Kamala Harris and Donald Trump are now like neck and neck in prediction markets. Uh so poly market, which has generally always leaned towards Trump ahead of other prediction markets, is now putting um Donald Trump and Kamala Harris at uh 50-50 split. Uh predict it, I think, even has Kamala in the lead. And Trump has been known to be the pro market's candidate. Uh and so the market, especially the crypto market, might have started to unprice in a Trump victory. So I'd be like, okay, well, like maybe we got a little bit of a lot of time. Let's unless, yeah, exactly. Let's unwind that from well. All in all, like it's probably the Yen Carrie trade that's impacting the markets the most. But overall, just like add uns a fear, uncertainty, and doubt into the into the market. Not to mention like the very high highs that we had been at just 15 days earlier. Like the stock market climbs a wall of worry, and like Nvidia has been just taking this entire economy, this entire stock market on a walk upwards.

Yeah.

Uh Microsoft too. And and overall, what what do we get when we get all when we add all of these things up is like we get a loss of one point eight trillion dollars of market cap. That's like what

Crypto. It's gone.

Swiped away in like one day. This happened on Monday. All this red that you see is all from the uh the equities markets on Monday. Okay, so that was Sunday and Monday. And then it felt like on Tuesday, we just kind of like

Took a deep breath, we got some breathing.

Okay, new normal. All right.

All right. And then on Wednesday we sort of let things settle. Well like where are we now in the markets? What's gone on since then? How are people feeling and and reacting? What what are some of the new data points coming out?

I would say we have erased some of the fears, as in like some of the fundamentals have kind of been like walked back. So the Bank of Japan announced that it won't hike rates when markets are unstable. So the Bank of Japan is like, ooh, whoa, we didn't mean that. Like, yikes. Sorry. Sorry, everybody. And so like the comment here is after an amazing 25 total basis points of hikes, the Bank of Japan is done with their hiking cycle. So like totally folding. And honestly, this is what this is what happens when you're a minority central bank. Like Japan, Japan actually needs to go be looking across the pond at America and make sure that they didn't just cause a recession in America. If they didn't cause a recession in America, they actually do have the tolerance to go back and hike rates, but they first need to make sure that they are not causing a recession in America.

Oh yeah. There were some phone calls made. Let's just say that.

Certainly. Certainly. Also, there's just an indication and some other stats and analysis and metrics that the US jobs report actually is not that crazy. There is a seasonal adjustment of jobs. And so when you adjust seasonally, this Twitter account, who knows more than me, Nick Timayaros, says that this has arrested fears that the United States labor market is imminently weaking when you adjust it seasonally. Claims continue to run to their year earlier and to their 2018 to 2019 levels. So jobless claims that we've seen before. So you know, maybe not that not so crazy. If you believe polymarket, the odds of a recession are down to 15% from 25% where it was over the weekend. Uh and then as well, uh the it's just uh the Federal the Our Federal U Reserve, our central bank, uh is being predicted to not change rates because they're not going to just like allow the market to whip them into changing rates. So it's being even though we don't know.

There's a the next uh September federal meeting uh is is in September. We actually just had one, and we had just had one just before this happened, which was one of the many causes of this fear was like, oh, the Fed just decided to like not change rates, and that happened two days ago, which means they're not gonna meet for another long while.

Yeah. And are they waiting too long? Are they causing a recession? That that was in the background.