Macro Expert Tom Lee on Why Crypto's Bull Market Isn't Dead Yet

Below, take a look at an AI-generated outline of Tom's conversation with Bankless. Click through at the bottom of the page to listen to the full chat! 👇

🤖: On Wednesday, Ryan talked with FS Insight’s Head of Research, Tom Lee, about the recent market volatility following the selloffs of the last few days. 

Tom Lee argues that the bull market is not over, and a recession is not imminent. The conversation addresses reasons behind the downturn, including poor employment reports and the Bank of Japan's interest rate hikes. Tom Lee shares optimistic predictions for crypto prices and highlights the positive shift in Wall Street's attitude towards crypto. 

Market Downturn Triggers

• Jobs Report Impact: The July US employment report showed a significant slowdown, with only 114,000 jobs added. This fueled recession fears due to the substantial miss in job growth targets.
• Federal Reserve Inaction: The Fed's decision not to cut interest rates despite the weakening job market added to investor anxiety and market instability.
• Bank of Japan Rate Hike: The Bank of Japan's unexpected interest rate increase disrupted global markets and carry trades. This move led to a sharp appreciation of the Yen, making carry trades less attractive and causing further market volatility.
• Currency Devaluation: The Yen's rapid appreciation, coupled with Japan's interest rate hike, caused significant disruptions in currency markets, further contributing to global market instability.

Market Reactions and Scenarios

• Volatility Index Spike: The VIX spiked to 60, a level comparable to peaks during the 2008 financial crisis and the March 2020 COVID-19 market crash, indicating extreme market volatility and investor panic.
• Retail vs. Institutional Activity: Retail investors faced significant liquidations due to margin calls, while institutions were buying during the selloff, a typical pattern during market panics.
• Equity Market Panic: The selloff was primarily in equities, with major indices like the S&P 500 experiencing sharp declines. Despite the panic in equities, credit markets remained stable, suggesting a liquidity crisis rather than a systemic issue.
• Potential for Recession: If not addressed, persistent weaknesses in autos, durable goods, and housing could lead to a deeper recession. Auto sales are down, delinquencies (missing loan payments) are up, consumer spending on durable goods is shrinking, and the housing market is strained by high mortgage rates and prices.

Crypto Market Insights and Predictions

• Historical Comparisons: The recent downturn in crypto markets is compared to the March 2020 crash during the COVID-19 pandemic and the 2018 market correction, where Bitcoin and Ethereum saw severe declines but eventually recovered strongly.
• Jump Trading's Impact: Jump Trading's significant Ethereum selling over the weekend increased market pressure and accelerated the decline in crypto prices, similar to past events where major players' actions have had outsized impacts on market prices.
• Crypto Forecasts: If the market recovers, Bitcoin could hit $100K by year's end based on past patterns of recovery. Ethereum is also expected to do well due to its strong community, ongoing development, and use in decentralized apps.
• Election Impact: Tom Lee discusses the potential impact of the US presidential election, suggesting that a Kamala Harris win could benefit Silicon Valley and tech, while a Trump victory might boost Bitcoin, commercial real estate, and small-cap stocks. 
• Investor Strategies: Emphasis on proper portfolio positioning, avoiding margin trades, paying off debts, and maintaining "dry powder" (unallocated funds) to take advantage of market opportunities during downturns. Historical data shows that well-positioned investors who remain liquid can capitalize on market recoveries.