Coinbase’s Head of Research, David Duong, shared his insights about the recent market movements in traditional finance and crypto.
He believes that the current macro conditions point to a temporary pause in the recent strong USD trend, which should support the crypto market.
Most important crypto and financial movements
Duong notes that recent carry trades, disrupted by the Bank of Japan’s decision to raise the hard limit on its 10-year bond yield, have created instability in several parts of the FX market.
Meanwhile, Brazil’s surprise decision to cut its benchmark SELIC rate by 50 basis points (from the expected 25 basis points) has led to higher interest rates in some price currencies that have fallen.
In the US, the yield curve steepened significantly after the rally in government bonds just two weeks ago, when the US Treasury Department announced an increase in the size of its debt issuance plans.
While Fitch downgraded the US debt rating from AAA to AA+ over concerns about the fiscal outlook, Duong believes this impact on bond yields has been fairly limited.
Duong emphasizes that the US dollar is more sensitive to front-end rates and that 2-year rates appear well anchored. This suggests a temporary pause in the recent strong USD trend, which should support the crypto market.
However, he expresses concern that crypto’s performance could be tied back to that of US equities in the near term, which could limit the upside of digital assets due to stressed valuations.
Duong also discusses the recent exploitation of four liquidity pools Curvewhich did not help risk appetite in the crypto space, but did not sustainably accelerate the downward trend that has been underway since mid-July.
He believes that the actual systemic risk associated with the exploit is mitigated by mitigating factors that compensate for certain vulnerabilities in attacks. He also thinks this is not evidence of DeFi’s weakness, but highlights the antifragile properties of the system.
With regard to market catalysts, Duong cites the court decision in the Grayscale case (to convert his trust into an ETF), distributions from the Mt Gox Rehabilitation Trust to creditors, and any movement on the various Bitcoin spot Exchange-Traded Fund (ETF). ) applications in the US.
However, he notes that all of those events are difficult to position, so the market will have to wait for more information before pricing them in.
Duong notes that desk flows are balanced in the majors, while altcoins are net for sale. He also highlights Optimism’s OP token, which has been trading better than expected, up 15% in the past 7 days, mainly attributed to the news surrounding Base, Coinbase’s L2 on Ethereum. That chain, built on the OP stack, will open for general use on August 9.
The total market cap of the cryptocurrency market stands at $1.13 trillion, which is consistent with the trading level since early August.
Moreover, Bitcoin’s dominance level is 50.25%, while the price is currently trading at $29,216, showing a slight drop of 0.1% in the past 24 hours.
Featured image from iStock, chart from TradingView.com