Wintermute: Crypto Margin Selling Approaches Exhaustion, Cautious on Rebound

On August 4, Wintermute stated that the Federal Reserve maintained the federal funds rate last week, allowing U.S. stocks to stabilize, partly due to the completion of large forced sell-offs. The leveraged AI fund Situational Awareness sold at a discount to Castle Investment. After a significant drop in AI infrastructure longs and a short squeeze in software shorts, the sell-off in chip stocks became self-reinforcing, but after the position handover, the market could digest the hawkish stance of holding steady. The crypto market has shown relative resilience, with Strategy once again selling Bitcoin preferred stock dividends. A vulnerability in Coldcard firmware led to significant Bitcoin holdings being stolen, while altcoins continued to be cleared. The sequence of U.S. stocks releasing pressure first, followed by crypto, aligns with previous assessments, with major cryptocurrencies retreating less than 4% under multiple shocks, indicating that margin selling is nearing exhaustion. It is still not advisable to heavily bet on a strong rebound, but positions and options data suggest that some may be caught off guard by a short-term technical rise. This week, attention will be on the ISM services and non-farm payroll data, with the Jackson Hole meeting being the last clear signal window for Waller before the September rate decision. The proportion of institutional OTC spot trading has risen to a record 72%, with liquidity further concentrating on mainstream assets.

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