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DeFiGaming & MetaverseInfrastructureMarketsNFTs
Research Weekly August 5, 2024
Aurelie Barthere
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Key Takeaways
5 min read
  • The magnitude of the downward moves in many assets (VIX, Topix, Crypto) makes it difficult to run after the trend and cut risk now (risk of being late and locking in losses)
  • That said, the increased probability of recession (30% soft landing + 10% hard landing for H2 2024 Nansen forecast) warrants more a trimming than an increase of risk allocation, in our view
  • Implied volatility being higher, it is now expensive to hedge equities or crypto with options
  • Being tactical and taking advantage of “up days” and periods of price recoveries (the Services PMIs published this week could potentially arrest the slide in risk assets) to reduce risk exposure can be a prudent strategy

Introduction

In this issue of the newsletter, we will make an exception and use neither new chart nor long backward analysis but address the key questions surrounding the ongoing sell-off in risk assets, including crypto, and the potential scenarios for investors going forward.

What triggered the crypto sell-off (BTC -24.5%, ETH -31.9%, SOL -37.8% in the past 7 days)? Crypto sold off along with other traditional risk assets: the Topix is down -20.1%, US Tech - 7.0%, of which Semiconductors -13.3%, US Small Cap -9.5%, Eurostoxx 50 -6.0%, and the S&P 500 -4.5%, in the past 7 days. Add to that a violent move down in US rates, as the US curve steepened: US 2yr -64bps, US 10yr -45bps. Implied volatility surged with the VIX almost tripling...