ROLLUP: Korea Gets Liquidated | The AI Trade Unwinds | Crypto Holds Firm | Warsh Holds Rates

The Korean stock market fell roughly 40% in 40 days during July, erasing approximately 2 trillion dollars in value after a prior run-up of 200 to 300%. Around 1.2 million accounts were margin called and between 320,000 and 500,000 were fully liquidated to zero, representing an estimated 3.4% or more of South Korea's adult population. The concentrated exposure to memory stocks, with SK Hynix and Samsung together representing more than 50% of the market at their peak, made South Korea uniquely vulnerable. Leveraged single stock ETFs bought on margin by retail investors amplified the damage. Memory prices themselves remain elevated even as memory stocks collapsed.

Leopold Aschenbrenner's hedge fund grew from under one billion dollars to approximately 20 billion dollars by front-running AI supply opportunities, reportedly reaching up 2000% at its peak. Running approximately 4x leverage, the fund suffered steep losses and was forced to unwind all public stock positions, with Citadel and Ken Griffin purchasing the public book. The fund is now reported to be up approximately 400%, though the full extent of losses remains unclear. Memory stocks turned green on Thursday July 30th, prompting speculation that the forced selling marked a bottom for the AI trade.

A December article by a writer named Noah outlined three structural scenarios for an AI bust. The railroad scenario describes financial over-speculation layered on top of something genuinely useful, where economic benefits fail to arrive before debt obligations come due, analogous to the 1873 railroad collapse. The airline scenario suggests AI succeeds as a technology but model makers like OpenAI and Anthropic become commoditized and fail to capture value. Current AI revenues from frontier labs are approximately 150 billion dollars per year against an estimated requirement of 2.5 trillion dollars per year to justify current capital expenditure, leaving a gap of roughly 2.35 trillion dollars.

Bitcoin held flat on the week and is up 11% over 30 days while Ethereum is up on the week and up 22% over 30 days, outperforming Bitcoin by approximately 2x during the month. The ETH to BTC ratio, in a four-year downtrend, is beginning to poke through its downtrend line, though this breakout is described as very early and needing to become more durable. UNI token is up approximately 36 to 37% over three months and at yearly highs, with its price described as highly correlated to ETH and reflective of the health of the Ethereum economy. One speaker identified as David acknowledged selling ETH at approximately 2300 dollars and noted it may look like a bottom sale in hindsight, while maintaining that ETH value capture concerns remain unresolved and noting that being technically correct on fundamentals does not guarantee being correct on price trajectory.

Kevin Warsh held rates steady at his first FOMC meeting as Fed chair, with the vote 9 to 3 to hold and 3 members voting to raise. The fed funds rate remains at 3.5% to 3.75% while inflation is in the high threes and possibly heading toward 4%, against Warsh's stated hard 2% target. Warsh stated that if inflation remains elevated through the forecast period, interest rates could well be part of the solution. Analyst Michael Nato believes two rate hikes remain possible this year at the September and December meetings. The 10-year treasury yield is at 4.7% threatening to break to new highs and the 30-year yield is at 5.2%, the highest since 2008. The Fed is currently fighting inflation primarily through balance sheet reduction and quantitative tightening rather than rate hikes, forcing private markets to absorb treasury bonds at price-sensitive yields. Warsh's willingness to let something break in pursuit of eliminating inflation raises the question of how high long-term rates can go before a policy reversal is forced, particularly given Trump's requested 44% increase in the military budget adding to the federal deficit.

Michael Howell's global liquidity research finds that a 1% increase in global liquidity historically corresponds to an 11% increase in crypto asset prices based on approximately 15 years of data, and that crypto's performance as a monetary debasement hedge is approximately 4x that of gold. Global liquidity has been on a downtrend, cited as an explanation for recent crypto weakness. The base case described is that the Fed continues tightening, something breaks, and monetary expansion then resumes, benefiting crypto. Ben Cowan separately theorizes a crypto cycle bottom in October.

Polymarket odds of the Clarity Act being signed into law fell from 40% to 26% after the Senate cloture vote did not happen. SEC chair Paul Atkins stated the SEC is ready to issue rules addressing the same issues through regulation if Congress does not act, while acknowledging that statutory certainty from Congress is ultimately still needed. Robinhood reported quarterly revenue of 1.3 billion dollars, up 32% year over year, with event contracts revenue up approximately 10x to 156 million dollars, while crypto revenue fell 38% year over year to 100 million dollars, its third straight quarterly decline, dropping to 7.6% of total revenue from 16% a year ago.