What’s up, General! It seems like crypto and stocks have gone into DEFCON 1 overnight. 👀 

With a splash of “black swan” events that nobody could predict — how are you handling the market?

And most importantly, how should we go about things in the next few weeks? Keep reading to find out 😉 👇️ 

WHAT’S HAPPENING? ⌛️

• 💹 Japan's Interest Rate increase to 0.25% results in international deleveraging spiral 🚨
• 🪖 Potential War Escalation: Israel is expected to escalate a war against Iran with the U.S. as a key ally. 🚨
• 🚨Emergency Rate Cuts? US Fed pressured for Emergency Meeting and early Interest Rate cut to prevent 2008-like crash 🏦 
• 🔥 BTC Liquidations: Over $1B in liquidations in BTC since last night, following a 20% dump to 49k 👀 
• 🦘 Jump Crypto unwinding positions adding to short-term selling 📉 

It seems like we’ve got the whole bundle to pay attention to. But what’s most important is how we handle our portfolios, right?

Due to the circumstances, we’ve brought our Strategy Update to FREE Subscribers for today!

We want you to have a — clear — view of the market. Subscribe to keep it that way!

The Impacts: Bloodbath🩸 

We’ll go over the news — and then, a strategy update to bring you into focus!

Japan’s Interest Rate Increase + Carry Trade Unwinding 🔥 

On 31 July, BOJ increase Interest Rates from 0.1% to 0.25%, intending to ease the burden on consumers paying higher prices for imported goods and acting against inflation.

However… this has caused a massive problem. For the first time in ~17 years, interest rates have been positive for Japan. 🟢 

Investors have taken advantage of a 0% rate Yen for many years by borrowing domestic Yen (for pretty much free) and investing it in Western economies, such as US Equities, Bonds… and CRYPTO 👀 

This arbitrage allowed investors risk-free yield as it did not cost them anything to carry out this trade.

As interest rates increased, global liquidity has taken a hit as investors rush to unwind their yen-funded carry trades to avoid losses from increased risk. This leads to major sell-offs in US stocks, crypto (and other markets, too). 🥹 

An increase in rates also surges the Yen’s value due to higher yield, which means the borrowers who entered foreign USD-denominated markets have inadvertently “shorted” the Yen and their debts have grown larger than the interest rate increases!

Just to illustrate this boom in the Yen:

This highlights the interconnectedness of global financial markets and how even Japanese monetary policy can have major consequences for the rest of the world.

It’s difficult to calculate how much liquidity is part of these yen carry-trades, but we estimate several trillions in borrowing (minus any hedging involved) that could be up for sale.

To illustrate the narrowing of the interest rates, we can see that domestic borrowers have been able to borrow the Yen at a 0% interest rate (or at decreasing rates) since October 2008, only changing recently.

Additionally, the increase in US interest rates may have added to the carry trade leverage as it was more attractive to make upwards of 5% yield holding USD with no risk, whereas US rates are now projected to be cut in September.

Potential Escalation to Conflicts in the Middle East? 🪖

Over the weekend, many countries announced their citizens to urgently exit Lebanon after increases in tensions.

There are high expectations that Israel will escalate a war against Lebanon and Iran — with a high likelihood that the U.S. will join in! 😨

We’ve prepared a board of the major reports over the weekend and coming into this morning:

What does this mean for crypto? 👀 

We may have several black swans on the way as the world seemingly gears up for war.

No matter how bottomed out you think crypto may be, there is a high possibility of even more volatility to come this week!

This means that you should hold off against ANY leveraged positions and MOST short-term altcoin trades.

However, an interesting point of view is viewing Bitcoin (not altcoins) as a Store of Value in the event of a war.

In this case, volatility may be your friend; you could dollar cost average into BTC at these levels given extremely favourable prices for the next few months.

We’ll do a strategy update for you in a moment!

Emergency Rate Cuts incoming? 🏦 👀 

We woke up this morning to rumours and extreme pressure for the Fed to hold an Emergency Meeting and cut rates early.

Given the outflows from the Japanese carry trade causing ripples across the world, it’s very likely that this will happen, instead of waiting for the September cut.

This shows just how bad things have gotten in a couple of weeks — US Indices are behaving like meme coins! What’s going on!! 👀

Jump Trading liquidating assets

Over the past couple of weeks, Jump Trading, one of the largest Crypto market-making firms started unloading assets (mainly ETH), resulting in over $400m of assets sold.

The full reason for this selling is unknown, other than news of new decision-makers, rumoured “Ansem” (historically a Solana bull) who have decided to flip the firm’s strategies on its head, and possible CFTC investigations in the firm.

We will go into more detail on the potential impacts of this — however, it is clear that it has been adding short-term selling pressure to the market.

This is an extremely short-term move from Jump and will not have significant impacts on the market post-selling.

Pok! Strategy Meeting 🏦 

Just like the Fed’s (potential) Emergency Meeting — this is our Emergency Pok! Strategy Meeting. 🚨 We want things to be clear so you can focus on what’s important — your portfolio 😅 

Note: BTC has unexpectedly dropped over 20% any Hedging Implementations such as protective puts would have worked REALLY well! Just a note for the future — allocating a few % of your portfolio to hedging may just save you.

Over $1B in Liquidations in the past few hours!

Fears of further crashes have led to over $12B in Open Interest slashed from BTC over the past few days (the majority being longs) — resulting in a massive deleveraging in the market.

Ruthless for leveraged longs — but an opportunity for accumulating lower!

The liquidity at these lows has allowed whales to increase their positions

We’ve been waiting for a capitulation event like this for a while, and this might be it!

It seems like most of the liquidity had been taken out — what remains is the insane amount of shorts to be liquidated to the upside, which has not yet happened! 👀 

Looking at the upside 📈 🚀 

• Given the excessive short delta in the market, it may be time for a pullback, especially at such a key level.
• Looks like we may have a potential SFP in play as we swing upwards from 50.75k.
• We filled the CME Gap ~57.8k last night but doing so has created ANOTHER CME Gap @ 62.48k. 🧲 
• Liquidations @ ~61k will act as a magnet to knock out shorts 🧲 
• pdVWAP @ 59.1k (key magnet only for today to retest)
• pwVWAP @ 64k (key magnet for the week)
• To continue towards 61k+, we should have a daily close above 56k.

Looking at the downside 📉 👀 

• Key Levels: 43.4k, 41.6k, 38.5k 🚨
• If we fail to hold 50.75k, we may inevitably drop to 40k, which seems like a high possibility due to economic and geopolitical uncertainty in the coming weeks.

Ethereum 🔵 

• Key Levels to the Upside: 2285, 3318, 35535
• pdVWAP @ 2751 🧲 (REBOUND TARGET for today)
• pwVWAP @ 3100 🧲 (REBOUND TARGET for the week)
• Key Levels to the Downside: 2118, 1994, 1646

We’re looking for a pdVWAP rebound for ETH to gain further stability, similar to BTC, if we do not hold 2118, there is a further significant drop to the downside. 🚨 

As BTC Dominance continues to the upside, heading towards the ~60% mark as economic/geopolitical fears bring investors to BTC as a Store of Value (as opposed to alts), we would prefer any short-term long/short positions to be in BTC rather than ETH, unless you are buying on spot and intend to accumulate for the next months.

Altcoins 🪙 

• The altcoin market seems to have reached a critical level, marking a local low
• A rebound is dependent on BTC and market stability in today’s US Open and the upcoming week of trading.
• We have scaled out of the majority of alts and short-term positions to prioritise more stable positioning in BTC/ETH given the market conditions.
• This period is absolutely an opportunity to search for buying opportunities for the next 3-6 months, however, we’d say ease off on short-term trading of these pairs.

Strategy 🛠️ 

• We’ll say it again: we recommend no leverage. However, if you can manage your risk well with stop losses, this is a good entry to take.
• We’re mostly sticking to BTC as it will have more predictable volatility as it is the dominant crypto asset. Given a trending BTC Dominance, we believe alts will continue to bleed against BTC further, even in the event of a rebound. 📈 
• Now is not the time to open shorts as you can easily get squeezed — when the market is in red and panic, it is a better time to go long. There is much more to the upside right now.
• We’re waiting for the US Market Open to make key decisions — we’re expecting a rebound in the crypto market, however further damaging news may stifle this, so keep an eye out, be ruthless with any open positions and don’t be afraid to take losses to prevent further losses. 👀
• It’s important to keep the bigger picture in mind — when there is so much blood in the market, it’s usually time for the big players and smart money to pile in, which is where most of us get caught out! 🩸 

Trade Idea: Long BTC @ 50.2k w/ 1-1.5x leverage & tight stop loss @ 49.5k, take profits @ 59k, 61k, 64k

(Entries/SL may be adjusted if BTC price comes to retest the low wick)

Trade Idea: Short BTC @ 59.14k if we touch with a strong reaction w/ 1x leverage & tight stop above high @ 59.2k, take profits @ 53k, 50k, 43k

Options Volatility Spread Trade Idea - STRANGLE (BTC)

We know the next few weeks are going to be nothing short of volatile.

With options, we can create a STANGLE Volatility Spread to make a direction-neutral bet which is long vega.

This means that it doesn’t matter if the price of BTC goes up or down, as long as it moves a certain amount from the current price, we will make money.

Let’s do a quick setup of this as a trade idea:

• A Stangle is made up of buying a put at A and buying a call at B. One of the options will expire worthless, while the other should be in a greater profit than their premiums.

• Asset: BTC
• Expiry: 16 August 2024
• Call Option: Long Call @ 56k
• Put Option: Long Put @ 47k
• Payout Target Low: 1.5x Risk/Reward @ 40k
• Payout Target High: 2.25x Risk/Reward @63k
• You can make the expiry shorter if you expect the move to be faster — however, even this way, if price moves faster, you will make more due to more time value and higher volatility increasing the value of the option!
• We’ve demoed this on Bybit Options and find it really easy to use, however, you can use any platform such as Deribit or Lyra (DeFi) to carry this trade out.

Pro Tip: Ensure you always keep cash at hand in the case for lower prices, it may seem like a good time to go all in but prices

Here’s places you could put your spare cash while you wait:

→ Stablecoin Farming: e.g USDC Lending on ExtraFi @ 10.8% APY (this is one of the stablecoin farms we are using! 😄)

→ PAXG (Digital Gold) (much less volatile)

Thanks for reading today’s publication! We crave your feedback — got any suggestions or questions for us?

Get in touch with at contact@tagoresearch.com or pop us a message on X at @tagoresearch.

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Disclaimer: The PokPok Pulse newsletter and any curated information provided by Tago Research are not intended as Financial Advice but as educational content for insights into the crypto market. Only invest what you can afford to lose. We are not liable for any losses incurred.