It has been a massive bloodbath across the financial markets, not just in crypto. The Japanese Nikkei 225 Index experienced its largest intraday percentage drop since 1987. The S&P 500 opened about 3.5% down, with the Magnificent Seven stocks plunging around 9% at the opening.

The Cboe Volatility Index (VIX) surged to levels not seen since the early days of the pandemic. The VIX has only reached these heights during the Lehman Brothers collapse and the COVID-19 crash in March 2020. For crypto, this feels like the worst single intraday drop since the COVID-19 crash.

This underscores the breadth of the selloff. It is not just confined to crypto but is affecting a wide range of markets. We believe this selloff is driven by three main factors, two of which are not specific to crypto: recession fears in the U.S. and the Yen carry trade.

The recession fears were stoked by a weaker-than-expected jobs report on Friday. However, this fear seems exaggerated given that the credit cycle, our core indicator of major recession risks in the West, does not look recessionary. Refer to Charts 2 and 3 for more details.