Group items tagged

"The recent surge in the price of Bitcoin has reignited debates about a cryptocurrency bubble, many of them based on intuition. This column takes a formal approach to the beliefs underlying both sides of the debate by introducing a model that builds on the classical framework for rational bubbles. If the price of a cryptocurrency can be justified from transactional demand, it may be a sound investment. However, if future investment inflows are needed to explain the price, that indicates a bubble, with payoffs resembling a Ponzi scheme."

Our previous post in November last year provided compelling empirical evidence that USDT printing was used by Bitfinex to manipulate the BTC/USD price upwards during the fourth quarter of 2017. And until the current allegations are proved one can only conjecture, but we conclude that the crypto market is now entering its second tether bubble.

Right now, the NFT bubble is a big one. Crypto grifters promote NFTs because it's a new avenue to bring fiat money into the world of crypto and to pump up their bags. The problem is, all bubbles eventually pop, and when this one does, retailers will be left holding the bag.

One of the untold stories of the past few years is that the CFTC, the Treasury, the SEC and the [National Economic Council] director at the time, Gary Cohn, believed that the launch of bitcoin futures would have the impact of popping the bitcoin bubble. And it worked.

"Bitcoin's price level is not an indicator of its sustainability. There are no economic fundamental data, there is no fair value from which serious forecasts can be derived. There is no "proof of price" in a speculative bubble. Instead, a reflation of the speculative bubble shows the effectiveness of the Bitcoin lobby. The "market" capitalisation quantifies the overall social damage that will occur when the house of cards collapses. It is important for authorities to be vigilant and protect society from money laundering, cyber and other crimes, financial losses for the financially less educated, and extensive environmental damage. This job has not been done yet."

MakerDAO's emergency shutdown option - which was weighed by community members following the appearance of a $4 million debt bubble on the decentralized finance (DeFi) platform - will not pass at this time. If a shutdown was triggered by the Maker team, all dai stablecoins in circulation would convert to the underlying asset, ether (ETH).

"MakerDAO and DeFi more generally are helping to provide an answer to the question that hangs over crypto. After the bubble, then crash, of 2017 and 2018, it's natural to ask, 'What do we use this stuff for?' DeFi is the first legitimate answer to the question. DeFi is starting to have its moment because it's the next chapter for crypto."

Crypto credit has expanded too quickly and is headed for a blow-up, says a group of former Wall Street traders who are now seeking riches in digital assets. A near $5 billion industry has emerged from nothing just two years ago and the number of loan platforms is rapidly proliferating.

Perhaps the takeaway is that when banks refuse to do business with crypto traders, or when a government bans trading altogether, it doesn't stop traders from trading. It just forces them to find creative solutions. If it were easy for crypto exchanges to use the traditional banking system, there would be no need for Tether at all.

A SPAC is a shell company that a "sponsor" investor or group organizes and takes public in an initial public offering. Once public, the company has no operations. It simply holds cash-typically, $200 million to $400 million-and has two years to find a private company with which to merge and thereby bring public. The sponsor invests some of its own capital in the SPAC as well but takes an additional 20% interest in the SPAC at a nominal price.

Tethers are the main source of liquidity for unbanked crypto exchanges, which account for most of bitcoin's trading volume. Currently, there are $18 billion (notional value) worth of tethers sloshing around in the crypto markets. And nobody is quite sure what's backing them. Due to Tether's lack of transparency, its failure to provide a promised audit, and the fact that the New York AG is currently probing the firm along with crypto exchange Bitfinex, its sister company, for fraud, a good guess is nothing. Tethers, many suspect, are being minted out of thin air.

Roubini predicted that "since the fundamental value of bitcoin is zero and would be negative if a proper carbon tax was applied to its massive polluting energy-hogging production... the current bubble will eventually end in another bust. He concluded by saying that "risky, volatile bitcoin doesn't belong in the portfolios of serious institutional investors. Many of its retail backers are suckers being manipulated by an army of self-serving insiders and snake oil salesmen. Tesla's Elon Musk and MicroStrategy's Michael Saylor may be betting the house on bitcoin. That doesn't mean you should."

"With the price of a bitcoin surging to new highs in 2017, the bullish case for investors might seem so obvious it does not need stating. Alternatively it may seem foolish to invest in a digital asset that isn't backed by any commodity or government and whose price rise has prompted some to compare it to the tulip mania or the dot-com bubble. Neither is true; the bullish case for Bitcoin is compelling but far from obvious. There are significant risks to investing in Bitcoin, but, as I will argue, there is still an immense opportunity."

During the great crypto bull market of 2020 to 2022, there was a reason people were willing to overlook the risks and drawbacks: all the coins were going up and making people rich. Rising prices were drawing in new people, who were driving up prices more. One crypto bro even called this "number go up technology" with a straight face. But it's more like an unsustainable bubble.

"We [Amy Castor and David Gerard] often get asked by reporters: "Why are crypto markets crashing?" The short answer is because there's no money left, and no more coming in. The long answer is more complicated."

Matt Taibbi asks some tough questions about the sanctity of the reserve assets that back Circles USDC stablecoin, and the issue of bankruptcy remoteness. Circle is unlike some competitors, whose user agreements specifically spell out that reserves are, say, "fully backed by US dollars held by Paxos Trust Company, LLC," or "custodied pursuant to the Custody Agreement entered into by and between you and Gemini Trust Company, LLC." Those describe trust agreements, which are truly bankruptcy remote. However, Circle is not a trust, so customers  are guarded only by protections afforded under state money transmission laws. However, Circle is only regulated  as a money transmitter in the states where Circle has licenses, and the firm has obtained licenses only in those states were licenses are required. There are other reasons to be concerned as a USDC hodler, and I recommend reading the whole post.

"Here's a quick handy guide to the crypto crash - the systemic risks in play as of June 2022. When Bitcoin slips below $20,000, we'll officially call that the end of the 2021 bubble."

"Bitcoin's market capitalisation reached new peaks in November 2021. This column, written by ECB staff, suggests it is hard to find arguments supporting the cryptocurrency's current valuation. Even if the financial stability risks of a Bitcoin collapse could be contained, the burst of the bubble would imply painful losses for many retail investors and society at large. The authors conclude that public authorities should refrain from taking measures supporting additional investment flows into Bitcoin and should treat it as rigorously as the conventional financial industry to combat illicit payments, money laundering, and terrorist financing."