On Friday, gold and Bitcoin were both cut down, while the U.S. stock market on the other side was basically fine. This pairing alone explains half the story.
In his first #JacksonHole speech after taking office, markets had been preparing for a relatively mild message. What he delivered was something else. According to the prepared remarks on the Federal Reserve’s website, he said inflation is still running above the 2% target, and the Fed’s focus should be on prices for now; if it can’t be confirmed that underlying inflation is moving toward the goal, then there’s still work to be done. The harder line came afterward: he said he can’t describe the current overall financial environment as sufficiently restrictive. That sentence is basically saying: money is still too loose.
The short-end bond market immediately understood. The yield on the 2-year Treasury jumped to 4.34%, the highest in a month. CME interest-rate futures raised the odds of a September hike from 35% before the speech to 60%, and the U.S. dollar strengthened accordingly. In the same window, the Nasdaq fell only 0.3%, ending the day essentially flat. Gold took the hardest hit, losing about 3% over the day on the spot market. Bitcoin was smashed from 81,479 all the way down to 76,888, and it’s now hovering around 77,700.
Put these numbers together and it doesn’t look much like a generic, broad reduction in risk appetite. Stocks barely moved, which suggests the market wasn’t worried that the economy would break or that companies would earn less. What got hit were gold and Bitcoin—both non-yielding assets. Their pricing works the same way: holding them produces no cash flow; the “cost” of holding is the risk-free interest you give up. When short-term rates move up one notch, the interest you give up becomes more expensive by one notch too, pushing the “reasonable” prices of both assets down at the same time. What traded on Friday was $BTC —rather than any mood swing in the Nasdaq.
So I don’t quite agree with the most widely circulated explanation. Screenshot after screenshot of liquidation claims are everywhere, with the story being leverage cascade—longs got swept. I pulled up Binance’s contract data myself, and that narrative doesn’t hold up. The funding rate—from last week through this morning—has been sitting around the 0.01% mark. During the rise it didn’t spike higher, and when price dropped it didn’t turn negative. The longs never paid any meaningful premium from start to finish. Trading volume tells a better story: from the intraday high on Friday until now, open contracts fell only 3.4%, yet the price range between the highs and lows spans several thousand dollars. Will Clemente even said publicly the day before the speech that, at that time, contract open interest was lower than it was before this latest rally started.
In a market where leverage didn’t build up much, a drop obviously can’t blow out too much. Those liquidation figures in the hundreds of millions of dollars aren’t that scary when put against a standing open position of more than eight billion dollars. Different firms’统计 conventions also don’t line up—they contradict each other. The price gets pushed down because on the spot side there are people willing to cut prices to sell, but there aren’t enough buyers willing to step in at the original price.
This conclusion is more uncomfortable than a liquidation stampede. A stampede is mechanical: after forced liquidations clear, prices often rebound a bit on their own. If price is repriced one notch, it won’t. The Asian-session move today is a good test. $BTC has since just been chopping around in a range of a bit over three hundred dollars—no rebound, and no further slide. On the altcoin side, SOL and XRP fell about four-plus points on Friday, and today they’re doing the same—basically flat. The market isn’t correcting an overreaction; it’s accepting a new price level.
That said, this view has a clear “dead spot”: whether a September hike actually happens.
The disagreement on this issue is bigger than it looks on the surface. F.L. Putnam’s Chief Market Strategist Ellen Hazen read the speech and concluded that Warsh was laying the groundwork for rate hikes. But she thinks he’ll use the newly set up working group as the reason to stretch the action out until after the midterm elections. Dakota Wealth’s Robert Pavlik goes further, saying this speech was a mix of hawk and dove: Warsh neither said nor hinted that a hike is imminent. That, in his view, is why stocks didn’t really drop on the day. Peter Schiff’s doubts are more direct. On X (Twitter), he said Warsh had been firing hard warnings about killing inflation ever since before his nomination, yet he never actually raised rates. With M2 and the Fed’s balance sheet still expanding, what exactly did this speech change?
These people are arguing about the same thing: whether the 60% probability is priced too expensively. If nothing happens after the September meeting, then the portion of short-end yields that jumped in the past few days should be unwound, and the valuation “notch” that has been pushed down on gold and Bitcoin should come back too. My inclination is that the probability is set too high. The reasoning is similar to Schiff’s: the chair who, even now, keeps refusing to spell out an action path is most likely to keep waiting for the data. But I’m not going to state it as certainty, because the line Hazen pointed to is the weightiest part of the speech: “financial conditions are not restrictive enough”—a phrase that leaves room for additional hikes.
There’s another shift too: it doesn’t move prices in the immediate term, but it will affect what the market focuses on over the next few months. Warsh said explicitly he doesn’t plan to provide forward guidance anymore. His rationale was that showing the Fed’s reaction function through predictions works better in a lab than in the field. When the market prices based on the Fed’s guidance—and then the Fed looks back at market prices to judge conditions—the two sides eventually end up seeing no new information together. Mohamed El-Erian spoke favorably about the speech, saying it lived up to the market’s earlier expectations of a big divergence in views. Andersen Capital’s Peter Andersen put it more vividly: investors want a navigation system, and Warsh gave them a compass.
People holding crypto will feel this shift in a tangible way. In the past few years of doing macro trades, a large part of the job has been reading the Fed’s wording. Going forward, that component will shift to the data itself. Each time CPI and PCE comes out, the market will have to price it on the spot—there won’t be an official framework to help align expectations in advance. The source of volatility will change, and the frequency will very likely rise.
So for this Friday’s drop, I won’t read it as crypto markets having problems of their own. It’s more like the interest-rate environment moved one notch, and gold and Bitcoin were pushed down together for the same reason. If you want to track whether the move has finished, you can watch whether the 2-year Treasury yield can hold the levels it was pushed up to over the next couple of days—and whether CME’s September probability keeps climbing or falls back to where it was before the speech. Those two readings are closer to the real source of this selloff than any liquidation screenshot.
In his first #JacksonHole speech after taking office, markets had been preparing for a relatively mild message. What he delivered was something else. According to the prepared remarks on the Federal Reserve’s website, he said inflation is still running above the 2% target, and the Fed’s focus should be on prices for now; if it can’t be confirmed that underlying inflation is moving toward the goal, then there’s still work to be done. The harder line came afterward: he said he can’t describe the current overall financial environment as sufficiently restrictive. That sentence is basically saying: money is still too loose.
The short-end bond market immediately understood. The yield on the 2-year Treasury jumped to 4.34%, the highest in a month. CME interest-rate futures raised the odds of a September hike from 35% before the speech to 60%, and the U.S. dollar strengthened accordingly. In the same window, the Nasdaq fell only 0.3%, ending the day essentially flat. Gold took the hardest hit, losing about 3% over the day on the spot market. Bitcoin was smashed from 81,479 all the way down to 76,888, and it’s now hovering around 77,700.
Put these numbers together and it doesn’t look much like a generic, broad reduction in risk appetite. Stocks barely moved, which suggests the market wasn’t worried that the economy would break or that companies would earn less. What got hit were gold and Bitcoin—both non-yielding assets. Their pricing works the same way: holding them produces no cash flow; the “cost” of holding is the risk-free interest you give up. When short-term rates move up one notch, the interest you give up becomes more expensive by one notch too, pushing the “reasonable” prices of both assets down at the same time. What traded on Friday was $BTC —rather than any mood swing in the Nasdaq.
So I don’t quite agree with the most widely circulated explanation. Screenshot after screenshot of liquidation claims are everywhere, with the story being leverage cascade—longs got swept. I pulled up Binance’s contract data myself, and that narrative doesn’t hold up. The funding rate—from last week through this morning—has been sitting around the 0.01% mark. During the rise it didn’t spike higher, and when price dropped it didn’t turn negative. The longs never paid any meaningful premium from start to finish. Trading volume tells a better story: from the intraday high on Friday until now, open contracts fell only 3.4%, yet the price range between the highs and lows spans several thousand dollars. Will Clemente even said publicly the day before the speech that, at that time, contract open interest was lower than it was before this latest rally started.
In a market where leverage didn’t build up much, a drop obviously can’t blow out too much. Those liquidation figures in the hundreds of millions of dollars aren’t that scary when put against a standing open position of more than eight billion dollars. Different firms’统计 conventions also don’t line up—they contradict each other. The price gets pushed down because on the spot side there are people willing to cut prices to sell, but there aren’t enough buyers willing to step in at the original price.
This conclusion is more uncomfortable than a liquidation stampede. A stampede is mechanical: after forced liquidations clear, prices often rebound a bit on their own. If price is repriced one notch, it won’t. The Asian-session move today is a good test. $BTC has since just been chopping around in a range of a bit over three hundred dollars—no rebound, and no further slide. On the altcoin side, SOL and XRP fell about four-plus points on Friday, and today they’re doing the same—basically flat. The market isn’t correcting an overreaction; it’s accepting a new price level.
That said, this view has a clear “dead spot”: whether a September hike actually happens.
The disagreement on this issue is bigger than it looks on the surface. F.L. Putnam’s Chief Market Strategist Ellen Hazen read the speech and concluded that Warsh was laying the groundwork for rate hikes. But she thinks he’ll use the newly set up working group as the reason to stretch the action out until after the midterm elections. Dakota Wealth’s Robert Pavlik goes further, saying this speech was a mix of hawk and dove: Warsh neither said nor hinted that a hike is imminent. That, in his view, is why stocks didn’t really drop on the day. Peter Schiff’s doubts are more direct. On X (Twitter), he said Warsh had been firing hard warnings about killing inflation ever since before his nomination, yet he never actually raised rates. With M2 and the Fed’s balance sheet still expanding, what exactly did this speech change?
These people are arguing about the same thing: whether the 60% probability is priced too expensively. If nothing happens after the September meeting, then the portion of short-end yields that jumped in the past few days should be unwound, and the valuation “notch” that has been pushed down on gold and Bitcoin should come back too. My inclination is that the probability is set too high. The reasoning is similar to Schiff’s: the chair who, even now, keeps refusing to spell out an action path is most likely to keep waiting for the data. But I’m not going to state it as certainty, because the line Hazen pointed to is the weightiest part of the speech: “financial conditions are not restrictive enough”—a phrase that leaves room for additional hikes.
There’s another shift too: it doesn’t move prices in the immediate term, but it will affect what the market focuses on over the next few months. Warsh said explicitly he doesn’t plan to provide forward guidance anymore. His rationale was that showing the Fed’s reaction function through predictions works better in a lab than in the field. When the market prices based on the Fed’s guidance—and then the Fed looks back at market prices to judge conditions—the two sides eventually end up seeing no new information together. Mohamed El-Erian spoke favorably about the speech, saying it lived up to the market’s earlier expectations of a big divergence in views. Andersen Capital’s Peter Andersen put it more vividly: investors want a navigation system, and Warsh gave them a compass.
People holding crypto will feel this shift in a tangible way. In the past few years of doing macro trades, a large part of the job has been reading the Fed’s wording. Going forward, that component will shift to the data itself. Each time CPI and PCE comes out, the market will have to price it on the spot—there won’t be an official framework to help align expectations in advance. The source of volatility will change, and the frequency will very likely rise.
So for this Friday’s drop, I won’t read it as crypto markets having problems of their own. It’s more like the interest-rate environment moved one notch, and gold and Bitcoin were pushed down together for the same reason. If you want to track whether the move has finished, you can watch whether the 2-year Treasury yield can hold the levels it was pushed up to over the next couple of days—and whether CME’s September probability keeps climbing or falls back to where it was before the speech. Those two readings are closer to the real source of this selloff than any liquidation screenshot.