Macro update

As flagged in last week's market recap, we were heading into a packed calendar of catalysts with elevated risk and positioning that looked complacent based on implied volatility levels. The week delivered exactly that volatility, albeit with some delays as the market digested the headlines through midweek before the risk-off rotation finally materialized on Friday and accelerated into the weekend.

After rejecting the top end of the $95-85k BTC range we had been trading in for the past two months, the setup heading into last Monday looked weak. Over the weekend, BTC broke below $80k for the first time since Trump's April 2025 tariff announcement. But unlike that episode, there wasn't a single clean catalyst to point to. 

Instead, markets needed a few days to digest a triple-threat of drivers which were (i) disappointing Mag7 earnings that cracked the AI narrative, (ii) Kevin Warsh's surprise Fed Chair nomination, and (iii) violent unwinding of froth in the precious metals complex. 

The delayed reaction meant the actual selling hit over a traditionally illiquid weekend, and with leverage still elevated from earlier in the week, the result was the 10th largest liquidation event in crypto history at $2.55bn. Crypto has been the poorest performer across assets, with only the S&P500 and crude posting positive results.

So what exactly within these three narratives convinced markets to derisk?

Warsh Nomination: Markets initially interpreted Kevin Warsh's Fed Chair nomination as hawkish given his historical skepticism of QE and balance sheet expansion. But the reality is more nuanced. Warsh has recently argued the US is in a "high productivity, low inflation equilibrium" and campaigned on cutting rates. Some strategists now expect as much as 100bps of cuts through October versus the 50bps currently priced through 2027. Friday's dollar strength was less about Warsh and more about a 2.4 standard deviation beat on Chicago PMI, real economy data, not policy speculation.

Mag7 Earnings & The AI Trade: Microsoft's earnings in particular disappointed, raising fresh questions about whether the AI infrastructure buildout can justify current valuations. The miss wasn't catastrophic, but it was enough to crack confidence in a narrative that's been holding up large portions of the equity market. When the AI story wobbles, risk appetite across the board takes a hit, and crypto, sitting firmly in the "risk-on" bucket, doesn't get a pass.

Precious Metals Flush: Gold dropped 9% while silver absolutely cratered 26% intraday, triggering CME Comex circuit breakers on Friday after a 10% move in a single hour. Contrary to some early takes, this wasn't a fundamental reversal of the debasement narrative. It was a margin call-driven flush after speculative positioning got wildly frothy. Silver in particular had been running parabolic, and when it broke, the unwind was brutal and mechanical. The fact that both metals still closed January with strong monthly gains tells you how overextended the prior move had been.

Our take:

“We are back into price discovery here as volatility returns to the market (for now)"

It was always a matter of when and not if that volatility returned and last week had the perfect recipe to do this. Positioning into last week also skewed odds to the move being to the downside. This is also reflected on the desk as the market feels generally heavy with limited participation. Where institutions were supporting markets throughout January, last weeks headlines increased uncertainty leaving very little incremental buyers in the market at these levels. 

It’s clear that we are in a bear market and frankly have been for some time, especially when you look at the altcoin performance, how narrow any rally is and the sentiment on X. What is different this time is that we’re not here as the result of a structural blowup (a la FTX, Luna, 3AC, etc) but due to macro and oscillating trends which led to organic (but not always orderly cf 10/10) deleveraging driven by positioning, risk appetite and narratives.  

That distinction matters. Without forced bankruptcies or contagion, this cycle could resolve faster than previous bears. The infrastructure is stronger, stablecoin adoption continues growing, and institutional interest hasn't evaporated, it's just sidelined. Mindshare can return quickly when conditions improve, likely in 2H26 as macro uncertainty clears and the Fed's policy path becomes evident.

For now, positioning is lighter post-liquidation but conviction is weak. We are back in price discovery after being range bound for two months. While it feels premature to talk about any meaningful upwards trend, if it happens, it will likely be clearer break from the recent downtrend than we’ve seen in previous bear markets due to the absence of structural damage in the crypto ecosystem.