Empire Newsletter: A weekend selloff spooks crypto

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Sunday scaries

Crypto needs a main character. Today, it’s Jump Crypto.

As of earlier this morning, Jump had sent almost $136 million in ETH over the past four or so days to platforms including OKX, Binace and Coinbase, among others. 

The price of ETH has meanwhile sunk 30%, from $3,230 to $2,250.

But Jump trades a lot. It’s a market maker, after all. Its outbound transfers to exchanges only really tell half of the story — at best. 

Over the same four or so days (Aug. 1 to Aug. 5), $24.44 million in ETH has flowed back into Jump Crypto’s wallets from exchanges. 

So, Jump Crypto has seen net ETH outflows to exchanges over the month to date of $111.5 million. (That figure includes wrapped and staked ETH tokens.)

It’s a lot of crypto, but scaled to the market, it’s not really that much. OKX’s ETH/USDT market is currently seeing over $2.1 billion in daily volume alone, according to CoinGecko.

That’s 100x more than Jump Crypto’s average daily net outflows right now. And then there’s the billions in ETH traded on Binance, Coinbase and others.

Still, the onchain data does show Jump Crypto increasing the volume of its ETH transfers to exchanges since July 25. 

Jump had apparently unwrapped liquid stake ETH via Lido six days earlier, amounting to 120,695.4 ETH ($317.1 million then, $271 million now).

The chart above shows the price of ETH over the past month. Green plus symbols show hours in which net ETH flows into Jump Crypto’s wallets were positive. Purple diamonds are for hours where net flows were negative.

Jump Crypto has sent $449.52 million ETH to crypto exchanges since July 5 with $104.6 million returned at some point (net flows: negative $344.92 million).

More than two-thirds of Jump’s ETH outflows in that period occurred after July 25: $301.96 million. That was about five weeks after a CFTC investigation into Jump Crypto was first brought to light, on June 20. 

Only $30.65 million ETH made its way back into Jump’s wallets — so it’s safe to say most of those transfers were meant to stay on exchange, at least in the short term. But the function of the deposits hasn’t been publicly disclosed, so the reason for Jump moving so much ETH to exchanges is unfortunately unknown.

For what it’s worth, Jump Crypto has been busy moving other cryptocurrencies around, not just ETH. There’s been slightly positive net flows for uniswap, BNB, shiba inu and maker, although all by less than $100,000.

Jump Crypto’s wallets also contain $2.42 million more in convex than it did this time last month. It’s likely all those flows have more to do with its market making than its own buying and selling. 

Net flows for USDC over the past month have however reached $433.15 million. Had Jump really intended to liquidate a huge portion of its ETH, then it’s well on its way. 

Jump obviously has sums of ETH stored in crypto exchange accounts, and even potentially additional funds in undisclosed crypto addresses, which limits the scope of this analysis.

But going by what’s trackable, per Arkham Intelligence, Jump still has 4,233 ETH ($9.47 million) in its known wallets, down from 126,960 ETH on July 5 ($378.72 million then, $284 million now). 

If Jump truly did cause panic, then the Sunday scaries are probably over for now. Hopefully the markets also see it that way.

— David Canellis

Data Center

• Jump Trading has $586.6 million in its known crypto wallets right now — $500 million of that in USDC.
• There’s also 49,391 WBTC ($2.61 million), 90.28 million threshold ($1.47 million) and 523.45 MKR ($1 million).
• More than 28% of the ETH supply is staked to the blockchain, and there’s another all-time high for validator count: 1,056,051.
• Crypto’s total market cap is down 16.5% in the past 24 hours, from $2.26 trillion to $1.89 trillion.
• About half of the top 100 by market cap have lost over 20%. JASMY, LDO, ONDO, BRETT and WIF are the worst hit, down close to 30% each.

Blood in the water

A perfect storm caused this selloff: the everpresent low liquidity in crypto markets during weekend trading and economic data that spooked investors from all over. 

Bitcoin, at time of publication, has only just bounced back over $50,000 — its lowest since February — after touching a low of $49,000. We saw a slight bounce from there, which follows what Ledn’s John Glover told us back in late June ($49,000 was a key level to watch if bitcoin broke below the mid-$50,000 range).

Let’s talk a little bit about the conditions that caused this weekend’s drop, and for that, I’ll don my economic cap.

One of the biggest concerns right now is whether or not the Federal Reserve got it wrong and kept interest rates too high for too long, which means we’d be in for a downturn. 

The Nasdaq is in correction territory — down over 10% from its last record closing high on July 10 — with futures selling off. On Friday, the S&P 500 slipped nearly 2%, and the futures markets this morning are pointing to a red day across equities. 

Weakening economic data, including a jobs report that came in off the mark (114,000 jobs added in July, whiffing expectations of 185,000) has folks running calculations on what the Fed must do to right the ship. Some analysts are calling for the Board of Governors to slash rates by half a point at their September meeting, while others are speculating on an emergency rate cut.

Now, the latter seems unlikely at this point, though it definitely would help buoy some of the tension in the market. 

I was working on the floor of the New York Stock Exchange in 2020 when the Fed made its shocking decision to cut rates by 50 basis points as Covid fears were really settling in, and it’s hard to draw the comparisons as the data stands right now.

Prior to that, the Fed acted to protect the economy from the 2008 crisis. The economic data isn’t good, but, as Bloomberg opinion columnist Marcus Ashworth put it, “this equity downdraft is fundamentally a market positioning unwind.”

Austan Goolsbee, the Chicago Fed president, didn’t take an emergency rate cut off the table in an interview with CNBC this morning. He was careful to make a point that the jobs number was weaker than expected, but that doesn’t mean we’re in recession territory. 

Though I will note that the VIX, a commonly used volatility gauge, is at levels not seen since the fall of 2020. 

“We’re living through the third-highest VIX spike ever, behind only the GFC and COVID-19,” Michael Batnick wrote. 

GSR co-CEO Rich Rosenblum said that the Fed will most likely act quickly in the wake of the data we’ve seen, especially given that it’s an election year. 

“The recent drop in bitcoin’s price is not significantly worse than the decline in the Nikkei index, indicating that the current sentiment is driven by external factors rather than issues within the crypto market itself,” YouHodler’s Ruslan Lienkha wrote.

“The problem lies in the global economy. Although it appears that bitcoin’s price has broken out of the multi-month consolidation channel of roughly $60k-$70k, the situation is still shrouded in uncertainty. It is unclear if we are entering a bearish market, and much will depend on the performance of the equity markets this month.”

Going into this week, we’ve seen $1.13 billion in liquidations, according to CoinGlass. 

Lienkha added: “Judging from historical trends in the crypto market, before the market forms a true bullish drive, it needs to experience a sharp decline to reduce the long positions of the contract in order to reduce the selling pressure for future rises. This is a key factor in the rapid rise of the market, observers can continue to pay attention to changes in the macro market including the panic index indicators.”

Another thing to note, on top of all of this, is the fact that August is generally a lower liquidity month. 

“Seasonality hasn’t typically worked in crypto’s favor for the month of August, with bitcoin averaging a decline of 2.8% during this month over the last five years (-0.5% over the last ten years),” Coinbase analysts wrote in a note ahead of the weekend selloff. 

So this is a lot of data and information to just say that we’re in a tight position right now. The stock market wants to see action from the Fed (and digest what we’re seeing out of Japan), while the crypto market is caught between economic data and its own headwinds (like Jump). 

Keep an eye on the price action now that folks are back at their desks. 

— Katherine Ross

The Works

• Crypto investment products saw $528 million of outflows last week, CoinShares noted. 
• A wallet tied to the Nomad hacker seems to have bought the ether dip, Bloomberg reported.
• White House officials and crypto executives might be meeting this week, per a Politico report.
• Jason Gottlieb, the lawyer representing the NFT artists in their suit against the SEC, said the regulator is engaging in “strategic ambiguity.”
• DeFi protocol Aave made $6 million from processing onchain liquidations, CoinDesk reported.

The Riff

Q: How many times do you check crypto prices per day?

Ugh, I guess I’ll bare all here: I generally have at least one chart pulled up on my screen at all times.

Though, in all fairness, it is my job, but I’ll be the first to admit it’s not great for one’s mental health. Especially right now. 

I’m not one to give financial or investing advice — and I’m certainly not doing so here — but I will say that sometimes there’s nothing you can do, and checking prices for a third, fourth or even fifth time in a series of hours isn’t going to magically turn things around. 

I know I just said to keep an eye on price action, but don’t let it consume you. Sometimes it’s better to touch grass and wait it out. 

— Katherine Ross

I probably check Twitter more frequently than CoinGecko, but it’s not by much.

I’m not actively involved in crypto markets right now — or else I’d likely check prices far more. (FYI: Anyone at Blockworks who is actively involved regularly discloses those holdings.)

The real question is how many times per day is too much. That probably depends on the weight of one’s bags.

Let’s put it at a reasonable ratio of once per waking hour for every 0.01 BTC ($500). For a few thousand bucks in crypto, that’s about 100 times a day — or every 10 minutes on average.

It might not be totally healthy, but it’s realistic.

— David Canellis

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