Bitcoin peaked at $64,899.00 on Coinbase on 14 April 2021 — the date Coinbase went public, and also the day Bernie Madoff died. The price has had its ups and downs since then — but trending down.
Today, Bitcoin crashed to $30,000.00 (precisely) on Coinbase. News outlets live for narratives, so today’s question has been: why?
The short answer is: everything caused the crash. Bitcoin’s in an asset bubble. And bubbles always pop. Anything or nothing could have jostled the house of cards.
Today’s trigger won’t have been China, the Treasury, external real-world events, news announcements or macroeconomic considerations. It’ll be shenanigans internal to a thinly-traded, heavily-manipulated, largely unregulated commodity market.
A reasonable target for suspicion is Tether — whose US-dollar stablecoin supplies most of the liquidity in the crypto market. Most trading is against tethers, and not against actual dollars.
Today, 19 May, is one quarter after Tether signed a settlement with the New York Attorney General to publish a report on their reserves, and also report privately to the NYAG in much greater detail.
Tether published a pile of amateurish nonsense a few days ago, that’s almost certainly inadequate to the requirements of the settlement.
(By the way: it appears that Tether cut’n’pasted their categories of reserve assets from an old Deltec Bank document — in which context the novel phrase “reverse repo notes” makes slightly more sense as a category.) [Twitter]
I expect nothing visible to happen quickly — NYAG could drop a 16-ton anvil on Tether’s head and prosecute them for every stunt they pulled between 2017 and 2021, but I think they’ll just tell Tether that this week’s report isn’t sufficient and to give more detail. (As I predicted in February.) I expect the NYAG to be much more concerned with the more detailed information that Tether has to give them privately.
But someone seems worried about Tether. There are a few thinly-traded USDT/USD pairs on exchanges; Coinbase just launched theirs. Usually, the peg is solid at $1.00 plus-or-minus a tenth of a cent.
Today, the peg slipped — and tethers have been bouncing between $0.90 and $1.10 on different exchanges. This sort of thing hasn’t been seen since October 2018, when Bitfinex found out that $850 million of Tether’s backing had disappeared with their dodgy payments processor.
There’s a lot of overleveraged crypto traders — who’ve placed margin bets, which they have to put up collateral for. When the price goes down, traders who’ve bet on it going up have to sell out quickly — and that drops the price further, and it cascades.
Today was especially brutal on margin traders — anyone betting on the price going either up or down got wiped out.
The obvious suspect is whales (large holders) burning the margin traders with a firehose of tethers. This has been the story for most of 2018 through 2020.
Elon Musk announced on 12 May that Tesla would no longer be selling cars for bitcoins. He was apparently “concerned” that Bitcoin had environmental issues. [Twitter]
I find it implausible that Musk had never, at any point in the couple of years he’s been talking up crypto, heard about Bitcoin’s carbon dioxide production issues. But earlier on 12 May, Reuters reported that Tesla was looking to get into the US renewable fuel credit market —Bitcoin would have looked pretty awful in this context. [Reuters]
I’d say it was Musk who got the retail public interested in Bitcoin in February, and turned the December pump into a genuine asset bubble. Once he changed his mind, retail worried too, and at that point it all looked shaky.
You might think this describes a pump’n’dump — where he bought in February, talked it up, sold in May, then talked it down. But Bitcoin is a commodity, not a security, and Tesla made all its required disclosures, so it might be all right. (I am not your commodities lawyer.)
Other spurious explanations
A reader on Twitter hypothesises that inexperienced crypto traders made a bundle in the crypto bubble. But under US law, every transaction is a taxable event. So the newbie traders dumped their trading data into TurboTax, realised their tax liability, went “oh dear,” and sold a lump of crypto to pay their tax bill. Apparently there were similar coincidental dips around this time in 2020 and 2019.
The last possible cause is events out in the wider world. China announced greater restrictions on crypto payments, because the People’s Bank of China still loathes crypto. [Reuters] The US Treasury under Yellen suggests that paying ransomware can violate sanctions, just as Mnuchin’s Treasury did. [Reuters]
I must stress: Bitcoin going up or down is almost never due to macroeconomic reasons or news announcements from the wider world. The last time it was, was COVID-19.
It’s almost always shenanigans inside the tiny, thin, unregulated, manipulated crypto market.
What happens tomorrow?
All that’s just the detail. It wasn’t just one thing, it’s that asset bubbles are fragile.
Will Bitcoin go back up again? Ehh, maybe. It’s a speculative asset, it’s got nothing else to do. It took most of 2018 for the 2017 bubble to fully unwind.
Bitcoin went from $30,000.00 (precisely) back up over $42,000 this afternoon, coincidentally with Tether sending 500 million USDT to Binance. Tether’s still here, with their thumb on the scale. Lots of crypto traders are looking for exciting opportunities to stab each other for whatever they can get out with. Expect more shenanigans.
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