Arthur Cheong, the CEO and CIO of Defiance Capital, has publicly criticized the role of traditional finance (TradFi) in creating downward pressure on the cryptocurrency market during risk-off events, particularly over the weekends. He argues that institutional investors have increasingly turned to cryptocurrencies as a means of short hedges, exacerbating volatility when traditional markets are closed.
Cheong”s remarks come in light of significant market movements this past weekend, following reports of Israel launching a preemptive strike on Iran. This geopolitical event led to the withdrawal of approximately $128 billion from the crypto sector, with both Bitcoin and Ethereum experiencing substantial declines. In stark contrast, traditional financial markets remained insulated from this turmoil, as they were not operational during the crisis.
The weekend”s events have drawn parallels to past incidents where sudden announcements, such as President Trump”s imposition of tariffs on China, resulted in immediate market reactions that were temporary for traditional assets. In those cases, the S&P index managed to recover quickly, while cryptocurrencies like Bitcoin, which fell below $110,000 from above $121,000, and Ethereum, which dipped below $3,700 from around $4,300, suffered prolonged damage.
Cheong expresses concern over a recurring pattern where institutional investors utilize cryptocurrencies as a quick exit strategy during times of uncertainty. Unlike traditional assets that can absorb shocks more gradually, the cryptocurrency market”s 24/7 nature and thinner liquidity during weekends amplify price swings and lead to significant losses.
Despite the challenges presented by this dynamic, some experts see an opportunity. Matt Hougan, CIO of Bitwise, noted that the disconnect between investor reactions and market fundamentals may offer a chance to gain broad exposure to the crypto space while it remains mispriced. This situation highlights the potential for tokenized assets to thrive even as traditional markets remain stagnant over the weekend.
As the cryptocurrency landscape continues to evolve, the ongoing tension between institutional strategies and market behavior raises critical questions about the future role of digital assets in global finance. Cheong”s insights serve as a reminder of the complexities inherent in the crypto markets and the ongoing influence of traditional finance on its dynamics.
