The Calm Before the Storm? Why Japan's Rate Hike Could Be Just the Beginning
Dear Investors,
Welcome to this week’s edition of the Myth of Money.
I’m publishing this newsletter a boat somewhere in the Mediterranean, as I sign off for a much needed week off.
First, some exciting news!
The “Myth Of Money” Book is officially ranked as a bestseller on Amazon Books! 📚
If you haven’t already, grab your copy below. Whether you are looking to learn or simply get entertained by some of the nuttiest stories in finance, I promise the book won’t disappoint.
Markets are rebounding…But not for long.
The markets were heavily rocked over the last two weeks, with Bitcoin dropping as low as $48k last Sunday and rebounding back to $60k within days.
All eyes are on Japan and the so-called “carry trade.”
As Bank of Japan announced their first rate hike in 15 years, lifting its benchmark interest rate to 0.25%, and it sent shockwaves through the carry trade—a strategy where investors borrow in low-interest-rate currencies, like the yen, to invest in higher-yielding assets elsewhere.
The unwinding of the carry trade led to a massive sell-off in global stock markets. The S&P 500 dropped by about 6% in a single week, and cryptocurrencies were not spared either. The Bank of Japan's move was not just a minor adjustment; it set off a deleveraging event of historic proportions, with the chief foreign exchange strategist at Societe Generale describing it as "the biggest carry trade the world has ever seen."
The impact was felt across multiple asset classes, leading to severe market dislocations. South Korea's Kospi and Kosdaq indexes were both suspended after losing more than 8%, while Japan's Topix index saw a similar plunge of over 12%, prompting a halt in trading. Even government bond futures in Japan were affected. Adding to the chaos, major brokerage platforms like Vanguard, Charles Schwab, and Fidelity experienced outages, leaving investors unable to trade or even check their portfolios at critical moments.
In the midst of this turmoil, DeFi systems were put to the test. Platforms like Aave v3 and Compound saw massive liquidations of collateral, with Aave liquidating $233 million and Compound $186 million. Despite the market's volatility, DeFi protocols like Ethena's USDe synthetic dollar maintained their stability, showcasing the resilience of decentralized systems compared to their traditional counterparts. While traditional finance struggled with technical failures, DeFi continued to operate, albeit under significant stress.
The market was pricing is significant hikes by the BOJ, beyond the initial 0.25%, but then… the Bank of Japan, said… just kidding. And walked back its decision, reassuring investors that 0.25% is there it stops, for now.
One can only guess what back door meeting happened between U.S. officials and the Bank of Japan. Arthur Hayes wrote a really great substack post summarising the mechanics of financial manipulations in Japan, which are highly recommend reading if you have the brain power.
TL;DR: The Democrats don’t plan on losing this election and they will do everything in their power to avoid a financial crisis until November 5th. Whether its through swap lines or back door repurchases of stocks, we shouldn’t see a market collapse over the next 3 months (unless something really breaks). But what happens afterwards is an entirely different story.
Donald Trump says we are close to the 1929 crash, a depression, and a new world war. And I don’t think he is far off.
America never truly fixed it’s inflation issue. We masked it with talks of a soft landing and massaging of CPI numbers. But the anger behind the average American who can’t afford to live is very real. And a necessary correction only takes places through a recession and a structural shift in our economy. We need new sources of GDP, whether its AI, crypto innovation, oil drilling, manufacturing, etc. And we need a restructuring of national debt, lest the government decides to monetize it (i.e. print money to infinity to pay it) or defend the U.S. Dollar with military force.
Former President Donald Trump's recent comments on the Federal Reserve suggest a potential shift in the relationship between the presidency and the central bank in the future. Trump argued that the president should have more influence over the Fed's interest rate decisions, a stance that could undermine the Fed's historical independence. With the U.S. economy showing signs of slowing—unemployment rising to 4.3% in July, the highest since 2021—voters may be less forgiving of economic downturns, especially if they perceive them as politically driven.
The potential for a recession looms large, with the Sahm rule already signaling an early warning. The rule, which predicts the start of a recession when the three-month moving average of the national unemployment rate rises by 0.50 percentage points or more, has been triggered.
Investors are now faced with the challenge of navigating a landscape where central banks' actions can trigger global market disruptions, and political leaders may seek to exert greater control over monetary policy. The only asset I am personally still bullish on is Bitcoin. As the world continues to lose faith in the central banking and fiat systems, it seems like we could finally see the decoupling event of the century.
This Week By the Numbers 📈
🏦 Macroeconomics
Japan halts interest rate hikes
S&P 500 had its best day since 2022 on Thursday
Warren Buffett owns $234.6B in short-term Treasury bills, surpassing the Federal Reserve
US trade deficit decreased 2.5% to $73.1 billion in June
China's CPI increased by 0.5% in July, exceeding expectations
US credit card debt reaches new all-time high of $1.14 trillion
🚀 Crypto & Tech
BTC bulls revisit $100k year-end-target after BTC spikes to $62k
As Bitcoin briefly plunged below $50,000 Monday, investors in BlackRock’s $19B spot Bitcoin ETF kept holding
Synthesia launches Personal AI Avatars, creating realistic digital versions of users
Michael Saylor holds $1B in BTC, adds $13B to MSTR
Robinhood's Q2 crypto revenues surged 161% to $81 million
Morgan Stanley authorizes 15,000 advisers to recommend Bitcoin ETFs starting Aug 7
Solana devs patch critical vulnerability, 70% of network fixed in 7 minutes
Pump.fun offers free memecoin creation, pays for successful coins
🗳️ Politics & Regulation
Harris selects Minnesota Governor Tim Walz as her running mate
Trump and Harris agree to debate on ABC on September 10
Crypto executives meet White House officials to discuss policy
Trump says presidents have a right to influence Fed policy
The New York Fed finds Tornado Cash remains a viable privacy tool despite sanctions
OKX to close accounts interacting with Tornado Cash
Brits warned that 'Retweeting' riot information could be criminal
⚖️ Legal & Compliance
FTX and Alameda Research ordered to pay $12.7B in CFTC lawsuit settlement
U.S. CFTC pays over $1 million to a crypto whistleblower
Coinbase criticizes CFTC's vague 'gaming' definition in proposed rule
IMF notes Bitcoin legal tender risks have not materialized
Top Stories 🗞️
Celsius sues Tether for over $2 billion worth of Bitcoin
Celsius Network Limited has decided to take on Tether in court, demanding more than $2 billion worth of Bitcoin. The lawsuit was filed yesterday through the Blockchain Recovery Investment Consortium, LLC, and targets Tether Limited along with several of its affiliates. The battleground is set in the United States Bankruptcy Court for the Southern District of New York. The drama between Celsius and Tether traces back to a deal they struck in 2022. At the time, Celsius borrowed USDT from Tether, putting up BTC as collateral. But things took a nosedive in June 2022 when Bitcoin prices dropped like a rock. According to their agreement, Celsius was supposed to put up more BTC to keep the deal alive. Instead, Celsius told Tether to sell off the BTC collateral to cover an $815 million USDT position.
Putin Signs Law Legalizing Cryptocurrency Mining in Russia
According to a report by Russian news agency TASS, the law introduces several key concepts, including digital currency mining, mining pools, and mining infrastructure operators. Mining activities are now recognized by Russia as part of turnover rather than the issuance of digital currency. The new legislation specifies that only Russian legal entities and individual entrepreneurs registered with the government will be allowed to engage in cryptocurrency mining. However, individual miners can participate without registration, provided their energy consumption remains within government-set limits. Additionally, the law permits the trading of foreign digital financial assets on Russian blockchain platforms. However, the Bank of Russia retains the authority to ban the placement of certain assets if they are deemed a threat to the country’s financial stability.
Ripple’s Victory Under Threat as SEC Plans to Appeal XRP Sales Classification and Fine
Judge Torres ordered Ripple Labs to pay a $125 million penalty for selling XRP without proper registration. Despite the significant fine, Ripple’s executives, including CEO Brad Garlinghouse and Chief Legal Officer Stuart Alderoty, expressed relief at the ruling. The court’s decision spared the company from the SEC’s initial demand of nearly $2 billion. One of the unresolved issues is whether a written contract is necessary under the Howey test to classify an asset as a security. Ripple’s defense hinges on the argument that one cannot consider XRP security without a written contract — a position the SEC is likely to challenge in its appeal. The stakes in this case are high because it can possibly influence the entire digital asset industry. The SEC’s enforcement actions and the resulting legal interpretations could set new standards for regulating digital assets in the US.
Brazil Approves Spot Solana ETF
Brazil's Securities and Exchange Commission (CVM) has greenlit a spot SOL exchange-traded fund (ETF). This is the first Solana-based ETF in Brazil and one of the earliest such products globally. According to a CVM filing on Wednesday, the ETF is currently in a "pre-operational stage," meaning it is pending further approval from Brazil's B3 stock exchange. Upon launch, the ETF will track the CME CF Solana Dollar Reference Rate, a benchmark developed by the Chicago Mercantile Exchange (CME) and CF Benchmarks. The filing states that the ETF will be offered by QR Asset, a Brazilian asset management firm, and managed by Vortx, a service provider for fund managers.
A US judge ruled that Google built an illegal monopoly. What happens next?
Google lost its landmark antitrust case against the US Department of Justice this week after a federal judge ruled the tech giant had built an illegal monopoly over the online search and advertising industry. The decision will probably have immense implications for both Google’s internal operations and how people interact with the most popular page on the internet. Judge Amit Mehta’s ruling specifically found that Google broke antitrust laws by striking exclusive agreements with device makers like Apple and Samsung, in which Google would pay billions of dollars to ensure that its product was the default search engine on their phones and tablets. During the trial, it was revealed that Google paid companies, including Apple, more than $26bn in 2021 alone to remain the default option for search in Safari. Those deals allowed Google to build a monopoly over search and unfairly suppress competition.
Thank you for reading this week’s edition of the Myth of Money.🚀
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Until next week,
Tatiana Koffman
About the Author: Tatiana Koffman
Hi there and thanks for reading! If you stumble upon my newsletter, you will notice that I write about money, economics, and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital, and Cryptocurrencies. I write to make financial topics more accessible and create equal opportunity for the next generation of investors. Currently working as a proud General Partner at Moonwalker Capital.
(More about me 👉 here).