Confluence
Zaps are Friktion’s weekly market insights newsletter. Friktion is DeFi’s leading protocol for risk-managed yield strategies. The platform has amassed over 17,000 users and traded over $2.5 billion in volume. The protocol’s mission is to enable access to long-term sustainable DeFi yields.
Start earning at: friktion.fi
Twitter: twitter.com/friktion_labs
Discord: discord.gg/friktion
At his much anticipated Jackson Hole speech Fed chair Powell emphasized the Fed’ s resolve to bring inflation down and pushed back against the idea that the Fed would be easing policy next year.
Powell expressed that “estimates of longer-run neutral rates are not a place to stop or pause” and that “restoring price stability will likely require maintaining a restrictive policy stance for some time to come”.
big oof for risk assets across the board.
S&P took whack down to the 4000 level as market participants decry the end of the bear market rally.
Yields rose, Dollar strengthened, crude rose into the week spelling for bad news for risk assets.
The world is still quite long equities, meaning that risk assets still have room to fall even more.
Many are pointing to Europe as one of the hidden drivers of U.S equity volatility as economic conditions worsen in Europe in light of an energy crisis and historic droughts.
Apple and Tesla are nearly 10% of the S&P and 20% of the QQQs–have roughly $100B in sales coming out of the EU.
With the probability of a 75 bp rate hike for the US now at 68% coupled with the announcement of a 75 bp hike from the ECB (Euro central bank), liquidity conditions are looking rough.
To add more bearish sentiment, September seasonality wise has always been a weak month for equities.
Crypto
Bitcoin traded down this week following Jackson Hole in confluence with its big brother, equities indices.
Bitcoin struggles to hold 20k going into next week.
Bitcoin implied volatility is still trading at quite a premium to realized volatility, a trend that’s been intact for almost a month.
Bitcoin skew reflects poor outlook on the upside vs. downside potential of the asset in the coming weeks.
ETH and SOL have been hit harder as they are higher beta assets.
News accusing the AVAX core team of aggressively litigating competitors broke late Sunday afternoon, dramatically moving the market. It’s typically quite rare for these kind of news events to be market moving.
Keep an eye out closely on how this resolves in the coming days.
Volt Performance
Friktion locked in $124,859 in premium for the protocol last week with defensive positioning on the downside for this week.
Volt #04 continues to do quite well in this market environment as demands for shorts pays off the short basis position.
Interested in contributing to the Friktion quantitative research and strategy effort? Join one of our Taskforces and let’s build the future of finance together.
Website: friktion.fi
Twitter: @friktion_labs
Discord: discord.gg/friktion
Medium: friktionlabs.medium.com
Documentation: docs.friktion.fi
