I discuss the weeks (last nights) market action as well as some thoughts on the state of the crypto markets.
Read the video transcript
Well, happy Friday, everyone. It’s Friday, August 19. I’m Dave Weisberger, the CEO of CoinRoutes. It’s time for This Week in Crypto. Ordinarily before last night, I might have said how boring of a week it was. Typical summer doldrums, not much happening. Bitcoin trading, in an extremely natural hour range. Yada, yada, yada. And then at a little after 2:30 in the morning, eastern time, 10 20 39, I guess, UTC… There was a fairly massive 10% down candle. It looks like it was triggered out on OKX.
And I say that because of liquidation data courtesy of Coinglass.com, which suggests that we have the largest long side liquidation that we’ve seen in the market since June, with almost half of that coming from OKX, where actually more long liquidations happen today than any day in quite some time. Even longer than that on that one exchange. Now, do I know what happened? No. Do I have theories as to what happened? Well, when you look at these sorts of events, I have typically in the past called them sloppy trading or messy trading, but it really boils down to one of two possibilities. Possibility one: there was a forced liquidation. Somebody said, okay, we need to sell and we need to sell now. And they did it poorly, they just sold. It could be that they owed money to someone on the exchange and there were market sells, and that in turn triggered liquidations in that exchange, which of course gathered steam, etcetera.
The second possibility is that somebody said: we can sell here. Interestingly enough, at 2:30 in the morning, which is one of the least liquid times of the general day, it’s markets winding down even in Asia, the US and Europe are not awake yet. And so let’s figure out the time that we could trigger the most liquidations and try to make this happen, and therefore selling to create liquidations and then buying back as liquidations sell into themselves and try to create that sort of self-fulfilling prophecy. People at the SEC like to call this a momentum ignition kind of strategy, which is generally classified as manipulation and generally not considered “legal” in most jurisdictions. Although in crypto there’s no particular rules.
I think there are some regulators that wouldn’t be very happy if that was the case. The issue in this case is that both Bitcoin and Ethereum moved in lockstep and took the rest of the market with them. And in fact, there were more liquidations, significantly more in Ethereum than there were in Bitcoin. So I don’t know what happened, it could have simply been somebody with merge anxiety, selling and doing it very poorly.
We used to see this all the time. But while CoinRoute doesn’t have that big of a market share, there are more and more people understanding best execution, and understanding why you should be patient when you’re doing, when you’re trying to sell and do so well. But every once in a while, there’s somebody out there who calls brokers for big bids or just hits bids and knocks the market down. I’m not sure we’ll ever know what happened last night, but it will be yet another instructive case for people to do the forensics to try to dig into it.
That’s basically what happened. So the market dropped like 10% odd percent. It recovered a little bit and then when the US came in, it fell basically another couple of percent in line with Nasdaq. Why did all of these assets sell off? Well, people are starting to realize that the Fed means business this time and they’re going to cut rates, they’re going to raise rates again somewhere between 50 and 75 basis points into what might be a slowing economy.
Now the interesting part about this is my thesis still remains unchanged. My eye of the hurricane idea. Obviously it doesn’t look like we’re going to softly rally up toward the old range, although that could still happen. We have time left in August and September for that to occur. But the reality is there’s a lot of nervousness out there. There are a lot of reasons and things for people to believe that there are other shoes to drop. And as long as that’s happening, then there is going to be an element of risk. The Ethereum merge poses risk, as I said last week. It also poses potential upside, if everything comes off without a hitch, I guess we will see.
From a news perspective, it was a very quiet week. The story from last week is still reverberating about the tornado cash, but I covered that last week so I don’t want to talk too much, except to say that more and more people are wondering if there’s a First Amendment angle to this because after all, code is speech. Well, we shall see. I’ll let the lawyers worry about this for quite some time. The only really news item we noticed this week was yet another big firm declaring that there are issues. So Genesis this week announced that their CEO Mike Morrow was stepping down effective immediately. 20% of the workforce is being laid off and that there was a rather substantial nine or ten figure, well… whatever. More than a billion dollar loss. Which shouldn’t surprise many people because we were told that their $2 billion loan to Three Arrows was only 80% collateralized and that collateral was counted more toward the highs of the market. Not where the market is today.
So understanding that there was a huge loss and a very major player in the industry is another shoe, do I think that that caused forced liquidation part of last night? Not really. I suppose anything is possible, but it seems unlikely. But the fact is, as long as these things are happening, we’re getting more and more people worried about the industry in general, which of course will cause this sort of volatility.
The other last news story is yet again. This time, mining companies were the recipients of yet another letter, this time from people in the House demanding to understand the environmental impact. And I’ve talked about this before too. The reality is, is my opinion on the environmental impact of Bitcoin, is more or less that it is incredibly overblown, that it neglects both Bitcoin’s ability to be used with sustainable energy. It ignores Bitcoin’s ability to stabilize grids that are using more sustainable and intermittent energy sources like wind or solar.
And it ignores the fact that Bitcoin provides serious utility. And while people say that the numbers are large, the numbers for things like clothes dryers or Christmas lights are actually larger. So, where will we go with this and what will happen? Who knows. But we are due in the fall impact assessments on the basis of the original executive order from the spring. And so we’ll see if we get yet another round of fear and loathing in the world of Bitcoin. But for now we’re still in the summer. We’ll see what happens. But I don’t really see a whole lot happening. In fact, since the candle down and the drift today, once again, volumes were spiked overnight but have basically reverted to their summer doldrums since then.
So we shall see if we see a continuation of the fall and we drop below the 17-18 thousand level, which has been the support level for this trading range, then I guess more carnage could be in store for us. Could that happen in the fall? Could it happen over the weekend, as markets are thin and there’s somebody out there trying to sell? Other people than me can figure that out. I mean, it will really depend on is there a lot of long speculation to drive potential liquidation cascades.
If there isn’t, I don’t see that happening. And frankly, from what I can tell, that’s unlikely, but we will see. In any case, we look forward to yet another summer report next Friday. Take care and have a great weekend all.