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What We See in the Markets: re-Rate Cut Anxiety, Crypto Liquidity Challenges, and the Looming Impact of the Trump-Harris Debate

Cumberland

Keep up with the latest in crypto research as we share the insights from leading institutional research players.

In this edition, Cumberland examines market anxiety over potential rate cuts, crypto's recent weakness, the crucial Trump-Harris debate's potential impact on digital assets, and the anticipated market effects of the upcoming Token2049 conference in Singapore..

Good Morning and Happy Monday from Cumberland APAC! Off the back of a weak macro market, crypto traded through its support on Friday, with BTC trading to a one-month low. Equity markets are showing some anxiety ahead of September’s assumed rate cut; the very thing that markets have been looking for is now making everyone extremely nervous. To be sure, equity historically markets fare poorly in the months immediately following the start of a rate cut cycle. Over the past 70 years (sample size of 17), the S&P averages a drawdown in the first twelve months of 13.6%. This drawdown is larger when the cuts are fast (-20.7%) than when they are slow (-7.4%). Because of this, we suspect the market skittishness is a confusion of causation. Typically, the Fed cuts rates to combat extreme negative conditions in the market, and the remedy takes time to have an impact, hence the continued drawdown. This rate cut cycle seems guaranteed to be a slow cycle, as any adverse market conditions are not particularly extreme (in fact, the S&P is only about 5% shy of its all-time high).

Activity in crypto has been muted for the past month, which probably contributes to crypto’s high beta vs. equities. There are two factors at play here: weak liquidity and market hesitancy. The weak liquidity is due to a combination of market structure changes and a pullback from crypto by some of its historic high-volume liquidity providers. Market hesitancy can be attributed almost completely to the impending election. This spring, it seemed as if the Democrats were easing their stance towards crypto, but since the transition to a Harris candidacy, there has been no signal in either direction from the Harris administration; meanwhile, Trump’s campaign has made crypto-friendly policy part of the platform. Tuesday brings the first and likely only debate between Trump and Harris, and it will be one that crypto traders watch closely. Anyone claiming “debates don’t matter” clearly missed the last one. Because this will be Harris’ only debate, it will be a one-off opportunity to introduce herself to swing voters. Candidates can get off to a slow start (remember Obama’s first debate against Romney?) so the fact that there will likely only be one debate is critical. We suspect that crypto markets would weaken off a strong Harris performance, and rally if she falters. Options expiring this Friday would be an efficient way to play for volatility related to the debate.

One more piece regarding market liquidity: next week is Token2049 in Singapore. This has always been a well-attended event, but this year’s seems as if it will be particularly busy, and it’s possible it will be the largest crypto event, by attendance, this year. This will undoubtedly mean lower liquidity in the markets as many traders will be at the conference, which means any headlines made at the conference could lead to some significant outsized moves. SOL had been an outperformer heading into last year’s conference, but during the event various headlines regarding AVAX and APT caused these assets to rally, and triggered a broader alt rally that persisted throughout Q4. This is not a comment on what might move coming out of Token, but a note that lower liquidity during the event may lead to outsized market moves.

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The information (“Information”) provided by Cumberland DRW LLC and its affiliated or related companies (collectively, “Cumberland”), either in this document or otherwise, is for informational purposes only and is provided without charge. Cumberland is a principal trading firm; it is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances, or requirements of any person, and it should not be the basis for making any investment or transaction decision. THE INFORMATION IS NOT A RECOMMENDATION TO ENGAGE IN ANY TRANSACTION.

If any person elects to enter into transactions with Cumberland, whether as a result of the Information or otherwise, Cumberland will enter into such transactions as principal only and will act solely in its own best interests, which may be adverse to the interests of such person. Before entering into any such transaction, you should conduct your own research and obtain your own advice as to whether the transaction is appropriate for your specific circumstances. In addition, any person wishing to enter into transactions with Cumberland must satisfy Cumberland’s eligibility requirements. Cumberland may be subject to certain conflicts of interest in connection with the provision of the Information. For example, Cumberland may, but does not necessarily, hold or control positions in the cryptoasset(s) discussed in the Information, and transactions entered into by Cumberland could affect the relevant markets in ways that are adverse to a counterparty of Cumberland. Cumberland may engage in transactions in a manner inconsistent with the views expressed in the Information.

Cumberland makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness, or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. Cumberland undertakes no duty to amend, correct, update, or otherwise supplement the Information.

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The information provided in this document by Cumberland DRW LLC is for informational purposes only and does not necessarily represent the views of OKX. Any additional disclaimers issued by these third parties are also applicable and should be considered as part of this document.

This report is not intended as financial advice, investment recommendation, or an endorsement of specific trading strategies. The contents of this report, including but not limited to any graphs, charts, and numerical data, are provided “as is” without warranty of any kind, express or implied. The warranties disclaimed include but are not limited to performance, merchantability, fitness for a particular purpose, accuracy, omissions, completeness, currentness, and delays.

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