The narrowing Japanese “yen carry trade” has been blamed for the Aug. 5 global market downturn that sent stock markets and top cryptocurrencies like bitcoin and ethereum plunging by double-digit figures. Some experts cite the disappointing U.S. jobs data and Mt Gox-related selling as factors contributing to the decline.
'Yen Carry Trade' Blamed for Global Market Rout, Jump Crypto's ETH Sale Worsens Ether Plunge
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Nikkei Posts Worst Single-Day Loss In Decades
According to an Aug. 5 commentary in the Kobeissi Letter, the unwinding Japanese “yen carry trade” is largely responsible for the global market downturn that saw gold, stock indexes, and cryptocurrencies plunge by double-digit figures in just 24 hours. The commentary said the Bank of Japan’s (BOJ) recent decision to raise interest rates to -0.25% — the second time since 2007 — strengthened the yen but ultimately narrowed the yen carry trade.
For investors who had been benefiting from Japan’s ultra-low interest rates, a stronger yen effectively erased the “almost free margin” they earned from borrowing in yen and converting this to U.S. dollars. The Kobeissi Letter continued:
“As the Yen strengthens, many of these Yen carry trades are being ‘margin called.’ Suddenly, the era of ‘free’ Yen loans is coming to an end. As these margin loans are called, the underlying assets are being sold and crashing equity markets. The carry trade is unwinding.”
As reported by Bitcoin.com News, Japan’s Nikkei stock market set the tone for the global selloff, experiencing its steepest daily decline since the 1987 Black Monday crash. Bitcoin, which briefly touched $70,000 a week earlier, plummeted to below $49,000. Technical indicators suggest BTC could fall further to the $45,000-$48,000 range if it fails to hold support at $50,000.
Post Halving Correction
Meanwhile, Daniel Cawrey, chief strategy officer of Tonkeeper, attributed Bitcoin’s massive decline to a combination of factors: Mt Gox-related selling, a weaker-than-expected U.S. jobs report, and widespread liquidations across the cryptocurrency market.
Mehdi Lebbar, co-founder of Exponential.fi, concurred with Cawrey’s assessment in a statement shared with Bitcoin.com News. Lebbar, however, argued that similar double-digit drops have occurred after each Bitcoin halving event.
“The overarching force remains the market’s need to inflict pain after a phase of euphoria surrounding the halving. The 10% decline after the previous halving was weaker because there was less hype after the March 2020 market meltdown,” Lebbar said.
While many commentators have largely linked Bitcoin’s more than 12% decline to macroeconomic factors, some believe Jump Crypto’s reported ETH unstaking caused Ethereum to drop by approximately 20%. Commenting on reports that a wallet associated with Jump Crypto had moved 17,576 ETH to centralized exchanges, Cawrey said:
Traders would only generally do this in anticipation of selling. However, sophisticated market participants would usually try to sell larger balances on the over-the-counter market, so the owner of this wallet clearly has an urgent need to sell.
While the market downturn has left many traders reeling, Eleonor Genova, head of communications at Nexo, reminded her X followers that the best time to acquire crypto assets is often after a steep drop. She shared three instances when this happened in the last ten years.
“So, are we really concerned about percentage drops? I know I’m not. Fear is the mind-killer. The long-term trend has always been upward,” Genova added.
Do you agree that the so-called yen carry trade caused markets to crash? Share your opinion in the comments section below.
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