The AI trade had a wobble

Macro

The Fed held the funds rate at 3.50-3.75% on Wednesday, but the 9-3 vote carried the week, with Hammack, Kashkari and Logan all dissenting in favour of a 25bp hike at only the second meeting under Warsh. The split keeps a 2026 hike live in market pricing without the Fed having to say so, which is exactly the ambiguity Warsh has engineered by removing forward guidance from the statement altogether.

On the week, the S&P500 gained 1.10% and the Nasdaq 0.55% while the Russell 2k closed flat, with gold off 0.10%, 20Y+ Treasuries down 1.20%, altcoins -1.64%, BTC -2.84%, ETH -3.63% and Brent the worst line on the board at -4.18%. Equities up with duration and crypto down is a rates story, not a risk-off one.

The 30-year jumped through 5.2% on decision day and touched 5.24%, its highest since July 2007, with the 10-year at 4.67% while the 2-year fell to 4.24%. A curve that steepens while the front end rallies means the market is charging more term premium which in turn points to a market questioning the Fed's inflation credibility rather than explicitly pricing potential rate hikes later this year.

Equities held up because a forced seller finished clearing mid-week. Situational Awareness, Leopold Aschenbrenner's levered AI fund, fell from $45B at the start of July to roughly $10B by Thursday, as margin calls on leverage reported up to 400% forced the sale of its entire public book to Citadel at below-market prices after AI infrastructure longs like SK Hynix and CoreWeave collapsed while its software shorts squeezed against it.

A seller of that size partially explains why July's chip selloff kept feeding on itself, and why the tape could rally through a hawkish hold once the book changed hands on Thursday. Whether other levered AI books face the same margin math is invisible from outside, so semis trading normally this week is our tell that the unwind is done (for now).

Looking at the energy markets, Brent's 4.18% drop came as Washington paused airstrikes on Iranian targets, pulling lower the one inflation input the Fed cannot control, though the long-end selloff alongside says bonds took little comfort.

Crypto had to digest all of this while running its own flow problem.

Digital Assets

$265M left US spot BTC ETFs on July's final trading day, most of the week's $61.5M net outflow in a single session, while ETH funds took in $27M for a fourth straight positive week. The month-end dump into a hawkish hold reads as institutional de-risking, and the opposing streaks say the marginal ETF dollar has rotated.

Strategy disclosed this morning it sold BTC again, its third sale since December 2022 under the framework that funds preferred dividends from the stack. The structure works as designed, but it converts the market's largest programmatic bidder into an intermittent seller just as ETF demand rotates away.

ETH outperformed BTC over July for a second consecutive month, with the ETH/BTC ratio at a three-month high as Bitmine kept accumulating. Looking at the wider demand from treasuries it still looks like only a narrow set are accumulating while most are sidelined.

In other news, a Coldcard firmware flaw let an attacker reconstruct seed phrases offline and drain roughly $70M of BTC from almost 1,200 wallets in 41 minutes on 30 July, without touching a single device. Every incident like this strengthens the custody and ETF pitch to the institutional audience already choosing wrappers over keys.

Altcoins fell 1.64% on our board as the long tail kept clearing, with Storj filing Chapter 11 on 26 July, the fourth crypto failure or wind-down in a week alongside Movement Labs, Poolin and BitMEX's permanent shutdown. None is systemic; the pattern is capital concentrating in the majors and their wrappers.

The Senate shelved the CLARITY Act ahead of the August recess, leaving 2026 passage in doubt and turning Atkins' pledge that the SEC will write market-structure rules itself into the live path.

Our take:

“Some air is coming out of equities before crypto, which is the sequence we wanted, and positioning says the pain trade is now up"

Majors gave back under 4% in a week that produced a three-dissent Fed, a 19-year high in the 30-year and a $45B forced unwind next door in equities, and holding that well through those shocks tells us the incremental seller in crypto is close to depleted. We have said for weeks that equity markets needed to let some air out before crypto could reset, and the Situational Awareness liquidation is exactly that exuberance leaving, healthy even with prices holding up.

It still feels premature to position for a strong rally, but based on our conversations most would be caught offside by one, and with open interest creeping up in select tokens while the majors' remains subdued, that leaves a technically driven short-term melt-up on the table as we enter the second month of summer liquidity. The view fails if last week's lows break on rising volume, since that would say the seller is not depleted after all.

Catalysts this week are ISM Services on Wednesday 5 Aug and July payrolls on Friday 7 Aug, with Jackson Hole on 27-29 Aug the only Warsh signal left before the September meeting.