Happy Father’s Day to all who celebrate it.
In my most recent update, I said “When you dig into the miner data … you see more outflows than normal, especially from Poolin and BBTC [but] no widespread movements across the mining sector.”
While that was true when I put the update together, by the time the day ended, we saw a huge flow of bitcoins from miners to exchanges. That amount is comparable to March 2019 and the fifth-highest amount of bitcoins in one day since 2017.
The number of transactions was unremarkable but the average outflow per wallet was massive, suggesting one or a small number of miners sent an exceptionally large amount. Make of that what you will. I don’t have precise enough data to say for sure. Maybe a better sleuth can figure it out.
That doesn’t change my analysis, it’s just an FYI that the data changed right after I sent the update.
In fact, it may have been an order from an exchange or entity that was short on BTC to cover withdrawals. Easiest to buy directly from miners, especially from distressed miners who need to sell quickly. We just don’t know the true cause, only that it happened.
It’s safe to say, cryptocurrency is having a fire sale.
This crash changes nothing about the investment case. Bitcoin will recover. The same altcoins that are destined to go to zero will still go to zero (perhaps sooner than we used to think). Likewise, the same altcoins that are destined to succeed will still succeed (we don’t know which ones yet).
The only thing that has changed?
Prices.
Forced selling of illiquid assets by diamond hands and HODLERS, the people who normally set the floor for prices. Panic ensues.
Maybe that’s why we see wallets with 1-99 bitcoins grow while whales send huge amounts of crypto to each other? Is this the revenge of the plebs against distressed whales? Big miners buying out other big miners while smaller buyers pick up the scraps?
Until we get some new buyers, it’s not really important whether the price goes down to $14,000 or up to $30,000. You have plenty of time to accumulate.
I’m still raising my allocation to one altcoin with each payday. If it seems inappropriate to talk about that in this moment, I understand. I feel like I need to tell you that I’m sticking with this strategy for the indefinite future. Although, I may sell some cash for more bitcoin. We’ll see.
Please share your thoughts about altcoins on my feedback page.
Tether
Now we hear reports that there’s a run on Tether. People are selling USDT at 1% discounts on the open market and clients are redeeming tokens at a rate we’ve never seen before. They may also be withdrawing from liquidity pools that have USDT pairs.
Not to cause panic, but I have heard rumors for years that some exchanges have agreements to swap crypto for USDT or vice-versa instead of keeping your tokens in-house. In the event of a proper run on Tether—which may never happen—you could lose your crypto (because the exchange doesn’t have enough coins to cash you out).
I hesitate to even mention that because I have no first-hand knowledge and I hate spreading rumors. I’ve heard a lot of rumors about a lot of things over the years and most end up being false.
But at least you know what I’ve heard (not seen or experienced for myself).
By law, US-regulated exchanges aren’t supposed to have these arrangements. With exchanges regulated under other jurisdictions, I honestly don’t know.
Whether this is something to worry about? I don’t know that, either. My thoughts on Tether in this video.
BlockFi
Note, I took BlockFi off of my list of Crypto Savings Referral Links.
They have close connections with 3AC and took a haircut on their GBTC investment. Lots of misinformation and rumors, we don’t know what’s true or not, but with everything else going on, I’m erring on the side of caution.
(I had no problem removing my funds.)
I don’t have anything against these platforms and I hope everything works out ok for everybody. I just don’t see a reason to take that sort of risk now.
Not to scare anybody but simply to provide some perspective, I’ll share an article from The Verge about Tether.
In summary, Tether and USDC are more like money-market funds. They own dollars and a pool of highly liquid assets that should allow investors to withdraw their deposits at any time. Because they’re not 100% dollars, they carry some risk that investors can’t redeem every dollar all at once. You’d think that once they run out of cash and cash equivalents, they’d borrow against their remaining holdings but in this environment, can you assume somebody will lend to them?
In Tether’s case, this concern is compounded by its lack of transparency. It’s nice to tell people what backs your stablecoin, but without more details, it’s hard to know just how much risk you’re taking.
Is a Tether collapse more likely than war between Israel and Iran? A collapse in the junk bond market? Sovereign debt defaults?
Nobody knows. Like USDT, we have no transparency about Israel’s and Iran’s military plans, how unprofitable businesses will pay back their loans, or how heavily-indebted governments can service their debts as the US financial system tightens its belt and China turns off the emerging-market spigot.
Sometimes, your worst fears never come true.
Blockware included a nice write-up on miner capitulation towards the end of its weekly post. Worth reading.
Also, in their update, they have some charts about macro and on-chain.
I’ll keep it short for now. Tough times, I know. We’ll make it out of this together.
Relax and enjoy the ride!
Weekly Rundown - June 19, 2022