Macro Environment
1) Rapid Rise of the Japanese Yen Leads to Arbitrage Collapse
Japanese Yen arbitrage trading involves exploiting price differences of the Yen across different markets or financial instruments. Common forms include interest rate arbitrage, currency arbitrage, futures arbitrage, and cross-market arbitrage. Investors borrow Yen at low interest rates to invest in higher-yielding assets or engage in buying and selling based on price differences between forex and futures markets to profit. Such trades typically require quick decision-making and execution to capitalize on fleeting price differentials.
Figure 1: USD/JPY
Many traders have borrowed Japanese Yen to go long on USD assets, and the significant reversal currently underway could create a strong reflexive effect. It’s estimated that the volume of carry trades amounts to around $4 trillion, with ongoing external injections of liquidity into the market.
Market Enters Panic Mode, Fed Likely to Intervene
Recent market turbulence, impacted by softening U.S. economic indicators, has seen declines in Bitcoin (BTC) prices, dragging down the altcoin market as well. The latest non-farm unemployment rate calculation shows a sharp 0.6% increase from the year’s lows, triggering the ‘Sam Rule’ recession prediction based on unexpected months of unemployment rate surges.
Figure 2: Sam Rule Recession Indicator
It is important to closely monitor the Federal Reserve’s next steps. There are rumors circulating online that the Federal Reserve will hold an emergency meeting on Monday to discuss interest rate issues following the stock market crash in Japan.
Figure 3: Fear Greed Index
This wave of selling appears to stem from a “time-triggered” algorithmic program, which has been triggering sell orders every day at 10 AM Eastern Time over the past 7 trading days (after the U.S. market opens). This algorithm continued to operate over the weekend, potentially fueling a high-frequency trading (HFT)-driven wave of selling and shorting, forcing leveraged long investors to capitulate.
Figure 4: Liquidation Heatmap (24 hours)
After leveraged longs encountered a ‘gold coin explosion’ setback, the market may consolidate in the short term and enter an upward phase.
High-Quality Tracks
In the current market environment, investors should carefully select investment targets and closely monitor macroeconomic conditions and market dynamics to make prudent investment decisions at the right time.
1) Tether Gold (XAUt)
Fundamentals: Physical Gold Backing
Tether Gold (XAUt) is a digital asset representing ownership of physical gold held in vaults.
Stability in Value
XAUt’s value is tied to actual gold, with each XAUt representing a certain quantity of gold. This has made XAUt perform well during market panics.
Transparency and Security
XAUt utilizes blockchain technology, ensuring transparent and secure transactions. Each transaction is recorded on the blockchain, traceable and verifiable, thereby reducing potential fraud and risks.
Convenience
XAUt allows for fast and low-cost trading globally. Compared to traditional gold trading, XAUt offers faster transaction speeds and is not limited by geography or time zones.
2) Tron (TRX)
Surpassing Ethereum in Trading Volume
According to blockchain analysis on X Lookonchain, transaction volume on the Tron network has surpassed 8 billion, four times that of Ethereum (ETH).
Stable Profits
TRX is projected to achieve overall protocol revenues of $700-800 million this year, with an annual protocol deflation rate of 6%. In unstable bear markets, TRX is expected to be a more stable token.
Conclusion
Monday’s sell-off escalated risk aversion in the cryptocurrency market, considering the collapse of yen carry trades and the potential for high-frequency trading sell-offs exacerbated by market panic. The current stabilization on-chain may depend on strong intervention from the Federal Reserve and the restoration of market sentiment. In a high-risk market, we believe holding or acquiring Tether Gold (XAUt) and Tron (TRX) as high-quality tracks could mitigate further downside risks.
The post first appeared on HTX Square.
