Hawkish Guidance

• Crypto underperformed equities this week. S&P 500 +0.73%, Nasdaq +1.80%, while BTC fell 2.78% to $63,556 and ETH fell 3.57% to $1,884.60.
• FOMC held for a fifth straight meeting at 3.50%-3.75%, but the vote flipped from unanimous in June to 9-3, with three dissents pushing for a hike. Polymarket puts September hike odds at 59%, up from 31% a month ago.
• BOJ held at 1.0% on an 8-1 vote and signaled a September hike is likely.
• Japan intervened to defend the yen, buying back an estimated $59B on July 30. The US Treasury joined Friday funded by selling euros, its first direct yen support since 2011.
• BTC ETFs closed July at +$173M net, reversing back-to-back losing months in May and June. ETH ETFs closed July at +$347M.
• BTC volatility sits near 52-week lows even as bond-market volatility (MOVE index) jumped 7.7%.

Crypto Underperforms

The S&P 500 closed up 0.73% (7,464.20 → 7,518.40) and the Nasdaq up 1.80% (25,236.19 → 25,691.40), while BTC fell 2.78% to $63,556, ETH fell a sharper 3.57% to $1,884.60, and total crypto market cap slipped 2.51% to $2.178T. A reversal from the pattern in our last two issues, where crypto was either outperforming equities or falling in lockstep with them. Everything sold off together into Wednesday's hawkish FOMC hold (the Nasdaq bottomed the week down 3.14% from Monday's open, BTC and ETH roughly flat), but the paths split from Thursday on: Microsoft and Amazon's earnings blowout dragged equities to a weekly gain by Friday.

Brent had its own volatile week, swinging between the mid-$90s and the $80s before sliding back to $84 on Sunday. The slide followed Trump's decision to hold off a planned strike on Iran and open talks Monday aimed at reopening the Strait of Hormuz and resolving the standoff over Iran's nuclear program. Sunday's OPEC+ decision to lift September quotas by ~188,000 barrels per day, completing the unwind of its 2023 voluntary cuts, reinforced the move.

Hawkish Future and a Situational Unwind

Interest Rate Decisions

FOMC produced its fifth straight hold, with rates staying at 3.50%-3.75% until the next meeting in September. In June, the hold was unanimous. This meeting ended 9-3, with a minority push for a 25bp hike. Fed Chair Warsh's press conference leaned hawkish too, declining to rule out a September move. Polymarket odds for a 25bp hike have climbed to 59% from 31% a month ago.

The Bank of Japan followed suit on Friday, holding at 1.0% on an 8-1 vote, also hawkish-leaning. With the BOJ's upgraded GDP outlook and inflation expectations clearly above 2% for the second half of FY2026, September is set up for a hike. The yen whipsawed around the decision with both the Japanese government and the US Treasury buying up yen to support the falling currency. USD/JYP dropped 3% from 163 to 158 as the yen spiked on the interventions. 

Rounding out the macro data, Friday's PCE print came in cooler than expected: headline eased to 3.7% y/y (from 4.1%), core to 3.3% y/y (from 3.4%), with core m/m at +0.1% against a ~0.2% consensus. Still well above the Fed's target, but a soft print in an otherwise hawkish week.

Mixed Earnings 

Robinhood posted a record $1.31B in revenue, prediction-market revenue up 10x y/y ($156M), and still fell ~3%. Coinbase missed on revenue and posted a net loss, though it notched a record 10.3% share of crypto trading volume; shares fell ~5%. Strategy/MSTR reported an $8.22B net loss from unrealized BTC mark-to-market losses, even as it grew its holdings to 846,000 BTC (+11% q/q) and cut total debt 18%.

AI Conviction Tested

AI related plays are taking a big hit, with many down 30-50% from their highs. 3.4% of South Korea’s adult population received margin calls after the KOSPI fell over 40%. Leopold Aschenbrenner, the AI trade's golden child, unwound essentially his fund's entire public-equities book. Bloomberg reported fund assets falling from around $45B to about $10B, with Citadel buying the liquidated portfolio at a discount. Beyond price action, fear is building over circular AI deals and hyperscaler spending without proven ROI. 

Saving the Yen

There are two things that tie Japan to the US. First, Japan is the largest foreign holder of US Treasuries at $1.14T as of May 2026. Second is the yen carry trade. Investors globally borrow yen at near-zero BOJ interest rates to buy higher-yielding assets such as US Treasuries, US equities and even crypto. A stronger yen or a tightening BOJ erodes profit margins and triggers forced unwinds. 

Historically, the Japanese government has favored a weaker yen in hopes of combating decades of deflation. However, inflation has hit a point where that bias has shifted. In order to defend the yen, which was near a 40 year low, Japan bought back an estimated historic $53B to $58B worth of yen on 30-31 July. Japan could continue to fund sizable buybacks by selling US treasuries held in their reserves. But selling pushes US yields up, widens the US-Japan yield gap, and weakens the yen. This reflexivity limits how much Japan can buy alone. To maintain market stability and reduce the sell pressure of their treasuries, the US Treasury Department stepped in, with a potential $5-10B purchase of JPY. The first direct support from the US since 2011, though at a fraction of that operation's scale.

Crypto Volatility Keeps Compressing

Deribit's DVOL index puts BTC's IV Rank and IV Percentile both at 4.1, down further from last week's 8.6 and 23 and now sitting near 52-week lows. Aggregate crypto futures open interest on Coinglass is essentially flat week on week at $111.5B (vs $111.9B last week). 

Positioning has drifted more short-tilted. 24 hour long/short ratio now sits at 47.4% long / 52.6% short, versus 48.54%/51.46% last week. Cumulative 7-day funding on Binance has fallen further to 0.0668% (~3.5% annualized), continuing a steady compression from 0.0985% and 0.1763% the two prior weeks. Taking a peak at traditional markets, the VIX sits at 15.99, near its own 52-week lows, while the MOVE index (bond volatility) jumped 7.7% to 83.02. Interest rates volatility is waking up while equity and crypto vol both stay quiet.

Monthly ETF Flows Flip Positive

Both BTC and ETH ETF saw relatively low flows this week. BTC ETFs had $61M in outflows, while ETH ETFs had $10M in flows. Zooming out, both funds closed July in with net inflows. BTC ETFs ended the month with a +$173M net inflow, reversing back-to-back losing months in May (-$2.4B) and June (-$4.5B). ETH ETFs closed July at roughly +$347M net inflow.

Key Events for the Week Ahead

Keep an eye out for how the yen situation plays out throughout the week and how the US-Iran conflict continues to change. 

Monday, August 3:

• ISM Manufacturing PMI (July)

Tuesday, August 4:

• Job Openings and Labor Turnover Survey (June)
• AMD earnings (after market close)

Wednesday, August 5:

• ISM Services PMI (July)

Thursday, August 6:

• Weekly initial jobless claims

Friday, August 7:

• Nonfarm payrolls (July)
• CLARITY Act's Senate recess deadline