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

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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