Crypto Turmoil
Why BTC Dropped 20% and How to Profit from New Opportunities on Base and Arbitrum
A Series of Negative Events Shakes the Crypto Market
Bitcoin (BTC) plummeted below $50,000, reaching its lowest point since February 2024. Solana (SOL) and Ethereum (ETH) experienced even steeper declines, with Ethereum facing additional selling pressure.
Last week, the highest U.S. unemployment report since October 2021 rattled Wall Street. Concerns about a potential recession caused significant market turmoil, affecting all listed companies.
Global Economic Pressures
Japan is also struggling. To combat Yen inflation, the Bank of Japan (BoJ) raised interest rates.
Higher borrowing costs forced companies to close positions, including those speculating on riskier assets or arbitraging interest rates with foreign bonds.
Japan’s Nikkei index dropped 5.5%, triggering a circuit breaker, with some Japanese bonds also affected. The 12.4% loss on the Nikkei was the worst day for the index since the “Black Monday” of 1987.
The Impact on Volatile Assets
Negative economic news hits volatile assets hardest. In the last 24 hours, $1.11 billion were liquidated on centralized exchanges, with 85.7% being long positions — bets on asset prices rising.
The Carry Trade Unwind
A recent 25 basis point interest rate hike in Japan caused a significant impact on risk assets, including a 20% drop in Ethereum (ETH).
Here’s why:
The carry trade involves borrowing money at low rates and investing in assets with higher returns. For example:
- Borrow Yen at a low rate.
- Buy an asset with a higher return.
- Profit from the difference.
This strategy works well if:
- Borrowing rates stay low.
- Collateral value remains high.
- Investments keep yielding returns.
However, these conditions are changing. The BoJ raised rates to combat inflation, similar to the U.S. Federal Reserve’s actions in 2022–2023. A weak Yen made it tough for Japanese consumers to buy foreign goods, pushing the BoJ to act.
Higher rates increase borrowing costs and reduce Yen supply, driving its value up. Yen-denominated loans become more expensive in USD terms, forcing traders to sell assets to repay loans, causing a liquidation cascade and putting more pressure on risk assets.
Jump Trading’s Major Sell-Off
The fundamentals of Bitcoin, Ethereum, and Solana haven’t changed, but ETH faced more selling pressure than usual.
Since July 23, Jump Trading has been withdrawing $500 million in ETH from Lido. Recently, they sent around $300 million to exchange wallets, likely to sell. They still hold $180 million in ETH monitored by Arkham.
The sale isn’t due to market sentiment but a CFTC lawsuit. It’s speculated they’re liquidating before regulators take action, potentially freezing assets. The president of Jump Crypto resigned amid the rumors.
The Jump Trading Saga: Kanav Kariya’s Rise and Fall
Jump Trading, a high-frequency trading firm from Chicago, ventured into crypto, initially as a playground for interns. Kanav Kariya, a recent intern, quickly climbed the ranks and became instrumental in Jump’s dealings with Terraform Labs, the creator of the algorithmic stablecoin TerraUSD.
In May 2021, as TerraUSD struggled to maintain its $1 peg, Kariya and Jump cofounder Bill DiSomma secretly bought large amounts of TerraUSD to create the appearance of demand. This temporarily restored the coin’s value and earned Jump $1 billion through a deal with Terraform Labs’ founder, Do Kwon.
However, TerraUSD’s instability resurfaced, and by May 2022, it collapsed, wiping out $40 billion in investors’ money and triggering a chain reaction across the crypto market. The collapse led to a global outcry and regulatory scrutiny on Jump Trading.
Although not charged with crimes, Jump’s reputation took a hit. The firm’s involvement came to light through a whistleblower’s testimony, leading to a fraud lawsuit against Terraform Labs and Do Kwon. Kariya, who had become the public face of Jump Crypto, resigned in June 2024.
Japan’s Market Turmoil and Global Impact
Japan’s stock markets have been dropping for three days, worsened by weak U.S. job data. This, combined with the Yen’s appreciation, rising BoJ interest rates, and geopolitical tensions, shook investor confidence.
On Sunday night, the Nikkei index fell by 5.47%, with the Topix index triggering a circuit breaker. Mitsubishi UFJ’s shares dropped over 21%. U.S. futures were also affected, and the Yen rose over 1.20% against the dollar.
Investors are reassessing positions due to higher interest rates, leading to the unwinding of carry trades. These involve borrowing low-interest assets (like the Yen) to invest in higher-yielding assets.
The Topix and Nikkei 225 indices fell over 7% during morning trading in Tokyo, extending their losses to more than 20% over the past few days, the worst drop since the 2011 tsunami and Fukushima disaster.
Weak U.S. economic data added to fears. Non-farm payrolls increased by only 114,000, one of the weakest results since the pandemic. The unemployment rate rose to 4.3%, signaling a potential recession.
Opportunities in New Blockchains
Despite the current market volatility, there are opportunities in new blockchains like Base and Arbitrum. These platforms offer high annual percentage yields (APY) with stablecoins on platforms like Beefy Finance.
Base and Arbitrum are innovative solutions providing lucrative returns through decentralized finance (DeFi) strategies. By leveraging these new blockchains, investors can earn substantial yields on their stablecoin holdings.
Check out Beefy Finance’s vault for sUSD on Optimism. This vault deposits your sUSD3CRV-f in a Curve farm, earning the platform’s governance token. The earned token is swapped for more underlying assets to acquire more liquidity tokens. This compounding cycle adds new sUSD3CRV-f to the farm, ready for the next earning event. The transaction costs are socialized among the vault’s users.
APY Breakdown for sUSD Vault:
- Total APY: 84.52%
- Vault APR: 4.26%
- Trading APR: 76.81%
Additionally, explore the Beefy Finance vault for FRAX and USDT on Arbitrum. This strategy deposits your FRAX and USDT into the Uniswap concentrated liquidity pool to earn trading fees on swaps. Rewards accrue separately and are claimable through the Beefy app. The fees are regularly claimed and redeposited to maximize compounding, ensuring optimal utilization of liquidity.
APY Breakdown for FRAX/USDT Vault:
- Total APY: 285.26%
- Trading Fees APR: 133.24%
- Merkl Rewards APR: 7.16%
Take advantage of these high-yield opportunities on Base and Arbitrum to maximize your returns in the current market landscape.
About the author: Rafael is a seasoned fintech expert, blockchain engineer and entrepreneur, passionate about enlightening others on the potential of blockchain and DeFi. He strives to demystify complex concepts and make them accessible and engaging for all.
