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Good Morning and Happy Monday from Cumberland APAC! Crypto plunged early on Saturday (or late on Friday, depending on timezones) on warnings of China tariff escalation, and it triggered a round of liquidations across centralized and decentralized crypto. This is the very definition of Monday morning quarterbacking, but two of the major recent trends in crypto (products that generate yield from perpetual basis; and the explosion in perp DEX usage) have led to higher open interest across perps, and more and more collateral being used. It is inevitable that markets trend towards lower-quality collateral being used, which can lead to ADL waterfalls, which appears to have contributed to what happened over the weekend.

As the market opens up this morning, several factors are leading to a cautious recovery. First is the macro; the market is starting to review the likelihood of a full-blown trade war with China, and stocks are cautiously opening higher in early trading, erasing about a third of Friday’s loss. If equities recover, crypto is likely to follow, but it wouldn’t be surprising to see a lag on crypto’s recovery, as just about everyone’s fingers are feeling burnt right now. The second contributor to the recovery is simply the recovery. Crypto being down off of negative macro makes sense, but the severity of the selloff had more to do with market structure (fragmented liquidity, exchanges being halted, and deleveraging) than with the headlines themselves. Now that the leverage has been (violently) removed from the market, crypto is doing some price discovery of its own. In recovery scenarios, the largest-cap assets tend to lead, while less-liquid assets tend to trail.

At the same time, to truly zoom out, one of the most interesting assets in the markets right now is Gold, which opened up this morning and is now up 11% in just the last month, a period where BTC is unchanged (though with a wide range in the interim). All things being equal, the recent trend has been a move towards more liquidity, and both gold and equities have pushed higher over the past few months as a result. This weekend’s price action might change the path of a BTC rally. Historically, in most periods where both equities and gold perform well, BTC tends to end up the fastest horse.

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Disclosure: The authors of this content and members of Nansen may be participating or invested in some of the protocols or tokens mentioned herein. The foregoing statement acts as a disclosure of potential conflicts of interest and is not a recommendation to purchase or invest in any token or participate in any protocol. Nansen does not recommend any particular course of action in relation to any token or protocol. The content herein is meant purely for educational and informational purposes only and should not be relied upon as financial, investment, legal, tax or any other professional or other advice. None of the content and information herein is presented to induce or to attempt to induce any reader or other person to buy, sell or hold any token or participate in any protocol or enter into, or offer to enter into, any agreement for or with a view to buying or selling any token or participating in any protocol. Statements made herein (including statements of opinion, if any) are wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader or any other person. Readers are strongly urged to exercise caution and have regard to their own personal needs and circumstances before making any decision to buy or sell any token or participate in any protocol. Observations and views expressed herein may be changed by Nansen at any time without notice. Nansen accepts no liability whatsoever for any losses or liabilities arising from the use of or reliance on any of this content.