Moonbags Markets

Another great meme lol

Looks like a banger

Seems we always have one b4 a rate cutting cycle

Study Q4 2018

Evidence has come to surface that the past few days was the tantrum

Nikkei has gapped up and limited up, here we go

The rats abandoning ship lol

🇺🇸 JUST IN: Biden's economic advisor Gene Sperling steps down. @Fin_Watch

Multiple giga wicks across the board

As of now, we are getting a bounce Things went a little overboard last night and the market is revealing that rn I do expect them to dump this a bit before close because there's no telling what will happen in Asia tonight

Coinbase/Bitfinex spread has nearly closed

The chance of them making a mistake is exceedingly high now

Fed stuck between a rock and a hard place now

Why the Markets Crashed: How This Impacted Crypto (3/3) Imagine if instead of you just converting your leveraged yen to USD and buying humble treasury bonds that you decided to purchase crypto (*cough* like Jump Crypto probably did *cough*). Maybe I bought some Bitcoin at $65k a few weeks ago. Or I obtained some Ethereum at $3.4k. For a while, that would’ve been no big deal for me. I’d be slightly down on that investment at various periods but overall would be fine. Now imagine last week some shaky news about the U.S. economy and other FUD pushes prices just a bit further down and my net position in my crypto assets is now -7% to -8%. If the Bank of Japan decides to suddenly jack up interest rates by 25 basis points out of nowhere, I’m really fucked. Because those crypto prices depreciated by 7 to 8 percent on the dollar but since the JPY’s interest rate increased, then those cryptos have depreciated even more against the currency I borrowed initially. So now I have no choice but to panic sell everything and cut my losses. Especially since the prices are already falling off a cliff as it is. And…yeah. Here we are. I’m sure there were other factors at play here but that’s what exacerbated the market dump over the past 24 hours.

Why the Markets Crashed (2/3) Let’s break down things a little more. When we say “borrow” here, we’re actually talking about shorting. This sounds weird when you think about currency. But remember when shorting an asset, you essentially borrow that asset for a period of time and then you sell it immediately in hopes of re-buying it at a lower price later on so that you can return that currency and profit on the difference in price. This is what traders were doing with the Japanese yen. However, just like the futures markets - the option of leverage is there. So let’s say I short an asset at 10x leverage. If the price of that asset increases by 1% then that means I really lost 10% of my invested amount on that trade. If I shorted (borrowed) some Japanese yen at 100x leverage (extremely conservative example) and the Bank of Japan suddenly raised the interest rate by 25 basis points, then my principal investment has taken a net loss of 25%. This is effectively my new “interest rate” on the principal amount I invested. Remember in the last post we stated the interest rate for USD was 5.50% & that we “borrowed” (shorted) 10,000 yen to obtain 1000 USD at a 5.50% interest rate. If we had NO leverage, we’d be ok with the 25 basis point hike. However we leveraged 100x. So we still only owe 0.25% on the loan but remember that’s on the leveraged amount. So that’s 0.25% * (10,000 yen * 100x leverage, which is 1 million yen) = 2,500 yen. So now I owe 10,000 yen (principle) + another 2,500 yen (interest) for a total of 12,500 yen. Now I’m under water on my USD/JPY trade. What Made Things Worse = Yen Appreciation Traders were hit in two major ways. The sharp increase in interest rates not only shifted our position -25% on the principal, it also makes the currency itself more valuable. Remember, interest rates are tied to monetary supply (in theory). Raising interest rates is supposed to deter or decrease borrowing for that currency & it also decreases demand for said currency (internationally, relative to others). So not only do I owe more money on my short - the value of the currency itself has increased, which is a problem if I were short. On August 1st, 1 USD was worth 150 yen. Now it only gets you 142 yen. That’s a +5% relative increase in value for the yen. Remember - we’re leveraged 100x so let’s take our example back up again. We borrowed 10,000 yen at 100x leverage to give us 1,000,000 yen. Assume 1 USD = 20 yen (for easier math on the eyes). That would give us 50,000 USD. Now let’s assume we invested that in a 5.50% yield product. That gives us $2,750 back for a new total of $52,750. However, now 1 USD = 19 yen. So when I convert that USD back I get 1,002,250 yen instead of 1,002,750. So that’s another 500 yen loss on our principal (since we have to cover the difference). Now if we had the 25 basis point (0.25%) hike we owe another 2500 yen. We’re now under water -30% on our position.

Why the Markets Crashed (1/3) Answer = Bank of Japan interest rate hike. You’ve probably read about this on Twitter already or elsewhere. But I’m going to thoroughly break it down here. Starting here: https://www.reuters.com/markets/rates-bonds/bank-japan-outline-bond-taper-plan-debate-rate-hike-timing-2024-07-30/ As you can see from the article above by Reuters, the Bank of Japan raised interest rates from 0-0.1% to 0.25%, which is a super sharp increase that caught traders off guard. How this Impacted Things There’s something called the ‘carry trade’. Basically this involves traders making money off the interest rate spread of certain currencies. So take USD for instance. The current interest rate is 5.50%. Before the increase in interest rates for the yen, let’s imagine that was 0%. So if I’m a trader, a “carry trade” option here would be borrowing yen so I can purchase some of that USD. That would give me a 5.50% profit spread. So let’s say 1 dollar = 10 yen (not going off actual rates; just an example). Perhaps I decide to borrow 10,000 yen. I use that yen to obtain 1000 USD. If I buy treasury bonds to obtain that interest rate, then I can capture that $55 profit (5.5%). That gives me $1,055. That translates to 10,550 yen when I convert it back to pay back the yen loan I received at 0% interest. That gives me the 5.5% profit I expected (interest rate % spread difference).

This is precisely what is happening rn Can't even log into my broker