Crypto

Short compression in crypto

Crypto just went vertical and as I type it drops vertically…with a bounce as I modify.

What is going on?

There are four possibilities.

  1. We have seen the crypto background.
  2. Something bad this way comes.
  3. Short press.
  4. American debt ceiling.

Let’s look at each.

1. Background

With DCG and Gemini in shambles and in the spotlight with 600,000 bitcoins
BTC
As part of Greyscale and billions of who owes whom and how much still unresolved, linking two of the top ten US crypto players, with regulators hot on their heels, how can this be the bottom line? The counter-argument is classic: it’s already in the price.

2. Something nasty is coming around here

For me, the previous second spike in bitcoin’s double top was caused by Afghanistan and the US pullout to prepare for the Ukrainian invasion. So many corrupt officials heading to the airport with bags of money was key to this spike because bitcoin is perfect theft capital. A minister left $5 million on the tarmac and you can imagine he was cursing himself for not being in bitcoin. Without this urgency, the top of this bubble would have been $40,000 and the next crash would have brought us back to where we were last week, at $15,000 straight to $60,000.

So, a sudden surge to the upside could be such a geopolitical emergency. A big Russian push in Ukraine, a regime change in Russia, a big escalation with Russia or much worse a Chinese invasion of Taiwan. There’s always North Korea to wreak havoc too.

Hopefully that’s not it and if you check the US military contractors they’re not through the roof.

3. Short press

One exchange that prepares for the kind of thing that sank FTX or “bucket shops” will often play is to sell client positions on the basis that they will fall and profit on the downside. Imagine a crypto exchange that sold its depositors’ crypto into stablecoins, big shorts. When the market goes down, they make huge gains on the drop in value. Now suppose the regulator starts breathing down their neck. Then they might frantically try to hedge that short and appear to hold depositors’ crypto in the crypto that clients thought they had. This will create a powerful short squeeze. This is my favorite explanation right now.

4. The US debt ceiling is coming.

Apparently, the US Treasury thinks that the mandatory public debt ceiling will be reached in a few days and it has put in place many brilliant mechanisms to prevent the US from defaulting. These reserves of money, which are huge, can last until June before the government has no more money to pay the bills. Interestingly, the Fed stopped tightening before Christmas and, at the same time, a lot of liquidity was injected into the Fed’s “reverse repo” system, suggesting that there was a flow of money in the economy at that time also for no apparent reason. As far as we know, this continued into the new year. Could this be cash flowing into the system for the US Treasury to use in case the debt ceiling vote turns into a complete mess, like last time? The recent election of the new president has turned into a South American farce, so raising the debt ceiling could also be a disaster, so better inject the cash into the system now.

When money soars, the system increases assets, especially stocks and the bubbly, frothy asset class: bitcoin and therefore all other crypto. It is also good speculation for what is driving the crypto and the markets higher.

Could the market instead predict the return of happy days? It’s not impossible but it seems unlikely. If it’s 3 or 4 it will be short lived. If it’s 2 or mostly 1, it’s high, high and far.

During this time, I don’t play on these tracks and took the opportunity to stash some loose crypto and turn it into a stablecoin.

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#Short #compression #crypto #Crypto

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