The "85" Plunge from the Market Maker's Perspective: Jump May Just Be the "Scapegoat"

Author: Fu Ruo, Odaily Planet Daily

Yesterday, influenced by the Bank of Japan's interest rate hike and expectations of a Federal Reserve rate cut, the cryptocurrency market and even the global financial market experienced a rapid decline, with the drop in the crypto market being particularly severe, especially among altcoins led by Ethereum, which fell over 20%.

The large-scale sell-off of altcoins by the market-making institution Jump further triggered panic in the crypto market. BitMEX co-founder Arthur Hayes wrote that a "big guy" was being liquidated and selling all its crypto assets, while the community generally speculated that the "big guy" referred to Jump.

But is this really the case? Did the market-making institution Jump sell the tokens it was market-making for, and what is the true reason behind this round of market decline?

Odaily interviewed market-making groups to try to understand from their perspective the reasons behind Jump's "selling tokens" and the market downturn, the regular operational logic of market-making, and when the bull market might return.

Macroeconomic Factors Dominate, Jump's Position Changes Insufficient to Impact the Market

The current market crash is quite severe; can you analyze the reasons from a macroeconomic or crypto market perspective?

SSS (Anonymous): From a macro perspective, the main reason is the appreciation of the yen, the Bank of Japan's interest rate hike, and the yen rising to around 150, now over 140, which has caused some panic in the Asia-Pacific stock markets. Dollar assets have also been affected to some extent, as can be seen from last week's market, where panic sentiment has already spread globally. Another important reason is valuation correction; the U.S. stock market is currently at a high valuation stage, and the correlation between the crypto market and the U.S. stock market is strong, with higher volatility, so when the U.S. stock market corrects, it is difficult for the crypto market to remain unscathed.

Does the crash in the crypto market need a trigger? Is Jump selling tokens the trigger?

SSS: Essentially, it is mainly macro-level factors. Currently, cryptocurrencies are more strongly correlated with macro market regulation and liquidity. Although there is attention on the on-chain asset movements of Jump, this is not the main factor causing significant changes in the market. For example, the collapse of Three Arrows Capital in 2022 marked the entry of the crypto market into a bear market, but it was not the trigger for the bear market. The behavior of large institutions is merely an explanation for market changes; in essence, the positions held by institutions are insufficient to influence the long-term direction of the entire market.

Moreover, every hedge and quantitative fund has arbitrage and hedging strategies, but due to the peculiarities of the crypto market, some of the hedging strategies are conducted on centralized exchanges, with only a small portion possibly on-chain, and most are just transactional movements. Therefore, the market tends to summarize single information as the core reason for this decline, which is fundamentally more related to macro factors.

As a senior practitioner in market-making, do you think Jump's on-chain asset transfers or conversions to stablecoins involve self-held crypto assets or tokens used for project market-making?

SSS: I tend to believe that Jump's fund movements are self-held assets for two reasons: First, market-making funds will not be used for staking. The movements from Jump's address indicate that funds are being withdrawn from staking, showing that these funds are not for market-making assets but rather self-held. Market-making funds are stored in on-chain wallets and subject to multi-party monitoring, or in market-making accounts opened on exchanges, which are also monitored in real-time by project parties and exchanges.

Secondly, the recent market adjustment has led to position adjustments for hedge funds or quantitative funds, typically including rebalancing, hedging, and liquidation, which is a normal phenomenon. The market focuses on on-chain fund movements, while internal behaviors on exchanges are difficult to observe, leading to incomplete information. There are usually hedging behaviors between on-chain and exchanges, and observing only one-sided information is incomplete.

Currently, we can only focus on on-chain movements. When we see Ethereum and others being transferred to exchanges, we might mistakenly think it is a sell-off. But in reality, this is more likely for hedging, although there may also be some selling components. Both on-chain and exchange fund movements should be considered comprehensively to obtain more complete information.

Future Market Expectations: Bull Market Return in the First Half of 2025

What do you think about the recent adjustments in the crypto market before the Federal Reserve's rate cut? If the Federal Reserve cuts rates in September, when do you expect the bull market to return?

SSS: Historically, the market usually adjusts before a rate cut. Similar to the cycle in 2008, the market generally experiences a significant adjustment before a rate cut. Essentially, this round of crypto market crash reflects an adjustment of future expectations. Trading is actually a reaction to expectations, so the market will adjust in advance before the rate cut expectations materialize. This significant adjustment in global assets may force the Federal Reserve to cut rates earlier. If the Federal Reserve cuts rates, the amount of money in the market will increase, and investors and institutions will seek better investment targets, indicating that the crypto market is not as attractive compared to traditional financial markets like the stock market.

Generally speaking, during this wave of decline, global major assets are adjusting, including gold, reflecting the market's extreme pessimism about short-term overall expectations. The adjustment in cryptocurrencies is often much greater than that of many stock markets, including the U.S. stock market, indicating that the crypto market is still viewed as a risk asset among major assets. Risk assets typically experience explosive bull markets during the mid-to-late stages of rate cuts due to liquidity overflow. Therefore, the performance phase of risk assets is generally in the mid-to-late stages of rate cuts. The current performance of the crypto market also reflects this trend, and explosive growth is likely to occur only when liquidity overflows.

Optimistically, the bull market may return in early next year, specifically in the first quarter of 2025; neutrally, it may return in mid-next year. The rate cut will take some time, and the performance phase of risk assets is in the mid-to-late stages of rate cuts, so a comprehensive bull market should arrive in the first half of 2025.

In this market situation, what is your company's investment strategy?

SSS: Currently, the strategy mainly has two aspects: time and price. In terms of time, the current market situation is similar to that in March 2020, when global assets generally fell, and Bitcoin also experienced the classic 3.12 event. The core reason for this round of crypto market crash is the changes in the yen and dollar exchange rates, with the key being the Federal Reserve's recent response and whether it will cut rates in advance or even rapidly, similar to March 2020.

In terms of price, we follow the principle of "no bottom in a bear market, no top in a bull market," so it is difficult to provide a clear price range. However, from trading characteristics, if the market further irrationally declines, leading to a rapid turnover of bottom chips, then that area can be considered as the bottom region. However, bottom-fishing operations are extremely difficult because sharp declines usually only lead to rebounds and not reversals; the bottoming process will involve oscillation and chip confirmation. Therefore, we do not predict price points but rather roughly judge the bottom area through trading behavior characteristics, starting liquidation operations and preparing for hedging.

At the current stage of the market, when Bitcoin rebounded in July, we had already taken some hedging strategies before it broke new highs. Therefore, in this pullback, our short position returns exceeded the losses of long positions. Overall, the key lies in the Federal Reserve's timing and the chip exchange situation during the market's sharp rise and fall.

Regarding chip exchange, we mainly focus on trading volume. When trading volume significantly exceeds the past, whether on a 4-hour, hourly, or daily basis, and continues to increase significantly for several days, that area can be considered as the bottom region. In this case, trading volume clearly multiplies the past average trading volume, which is an important indicator for judging market rebounds and bottoms.

Finally, what investment opportunities do you think remain for the rest of this year?

SSS: I believe there are two directions: MEME Coins and the AI sector. MEME Coins still have high trading volumes during the decline, and the market has chosen MEME Coins even in a downward trend. AI is currently the mainstream narrative among major assets, and macro-level narratives around AI will continue into the crypto market.