Jul 4, 2022 • 5M

Weekly Rundown - July 3, 2022

Fix the floor first

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It’s abundantly clear that cryptos are trading at fire-sale prices.

Lots of people posting about whale activity, but from my perspective, looking at the movements of crypto and reports in the news and among people who know more about what’s going on than I do, it’s not as clear as people think.

Unusually large amounts of crypto are moving among whales. No need to show the charts, you can see this clearly on every legit analytics platform.

My best guess? Distressed miners and funds are sending or selling crypto to large buyers who have money to bail them out or take over their assets, possibly through brokers (trusted third parties, OTC desks, etc).

While this may look like panic dumping, I’m not willing to make that conclusion. We don’t know anything about the motivations or terms of these transactions, only that they’re happening.

Regardless, it means less buying pressure on the spot market. Big buyers filled their bids in private deals.

Medium-sized wallets seem to have picked up the slack. Some people think this comes from lots of people taking funds off of exchanges into self-custody, but I didn’t see that in any data I could find on exchange flows. It might be smaller buyers scooping up cheap crypto at the expense of over-extended whales.

I looked more deeply into this and other aspects of the market in my market update from June 28, 2022.

Get the June 28, 2022 Update

Suffice to say, the market’s floor collapsed. It will take a while to rebuild that floor. We still don’t know what other shoes may fall in the coming weeks and months. Watch my mini update from July 1, 2022, for some thoughts on that.

Watch the Mini-Update

If you have a chance, catch my altcoin report for July 2022.

Altcoin Report - July 2022

Scroll down for a poll and some other content.

Poll: is the bottom in?

Decentralization Dies in DeFi

If you have a chance, read Patrick Tan’s excellent piece, Decentralization Dies in DeFi.

Read the Piece

In short, he argues that the failure of DeFi came from the consolidation of activity in the hands of a few centralized actors. As he says:

The whole point of DeFi was to self-custody cryptocurrency assets, but because the technology is nascent, interacting with smart contracts and Metamask wallets isn’t as user friendly as dealing with a centralized intermediary lender like Celsius Network.

Millions of depositors were more than happy to accept a lower interest rate than they could have just so that Celsius Network could abstract some of the complexity of DeFi out of yield generation.

For as long as DeFi remains complex, the demand for centralized cryptocurrency lenders will remain.

And for as long as centralized crypto lenders remain, the premise and promise of DeFi will continue to be eroded.

My take?

These lending platforms provided a valuable service. They removed the complexity and risks of DeFi while giving people attractive yields. The collapse came from poor risk management made worse because so many funds dealt with 3AC. 3AC either stole or lost its clients’ money (possibly both), blasting a hole in some platforms’ balance sheets.

At the same time, we have many crypto-native projects aiming to abstract away the complexities, improve the design of native DeFi protocols, and manage or mitigate the related risks in ways that do not require centralized entities.

Hopefully, they can deliver useful, accessible, safe platforms before Wall Street comes in with its own version of CeFi-DeFi, except with professional risk management and a (soon-to-come) US regulatory regime to set guardrails.

I’d say these platforms have about two years before professional, regulated, well-managed lending shops make CeFi-DeFi “safe” again.

This leads me to a tweet:

Now you see bitcoin maximalists calling you stupid for trying to earn some yield on your crypto. Some of them think you’re a terrible person for earning yield on anything, crypto or otherwise.

For my take, watch this video.

Relax and enjoy the ride!