Insights, news and analysis for the professional investor By Marc Hochstein, Executive Editor October 10, 2021 Sponsored by Bitcoin (BTC) - $55,696.61 Prices as of 10/10/21 @ 8:00 a.m. UTC If you were forwarded this newsletter and would like to receive it, sign up here. It is my pleasure to introduce Crypto Long & Short subscribers to Lawrence Lewitinn, CoinDesk's managing editor for global capital markets, who is taking over as the regular writer of this newsletter's weekly Briefing.
Many of you know Lawrence from CoinDesk TV, where he co-hosts the daily morning show "First Mover," and is a tough-but-fair interviewer. He also helped launch CoinDesk's popular daily newsletter of the same name, now led by our longtime market maven Omkar Godbole.
While most financial journalists face a similar disadvantage as Plato's cave dwellers, understanding the markets they cover only in the abstract (when they understand them at all), Lawrence has been out in the world. Before entering the media racket, he traded foreign exchange, fixed-income and commodities. This chartered financial analyst (CFA) charterholder knows of which he speaks.
Below, Lawrence considers a possible – and unsettling – explanation for why someone bought $1.6 billion worth of bitcoin at once last week. If his hunch is right, the run-up to $55,000 may not be as bullish a development as it seems.
– Marc Hochstein, executive editor A message from Crypto.com Buy bitcoin and 100+ cryptocurrencies with 20+ fiat currencies. New users can enjoy 0% credit/debit card fees on all crypto purchases made in their first 30 days. Download the Crypto.com App now. Like a toddler in a car seat on a long drive, last week the cryptocurrency market persistently asked the gnawing and annoying question, "Why?"
Specifically, why did someone make a massive purchase of $1.6 billion worth of bitcoin on Wednesday in a couple of minutes?
While many see this huge buy as a signal of bullishness, there may be more complex answers when one zooms out and looks at the overall picture, one that involves capital markets beyond the relatively small world of crypto.
Some of the clues about why – and who – may be found in what, where, when and how this enormous bitcoin trade happened.
What?
As CoinDesk's Muyao Shen reported Wednesday, a buyer or a group of buyers entered an order on a centralized exchange to buy $1.6 billion worth of bitcoin. That's not nothing – to put it in perspective, that's roughly 4.5% of the average daily volume in the bitcoin spot market over the past two months.
That much supply hitting the market in under five minutes (13:11 to 13:16 UTC Wednesday) is a lot to jam into any one exchange (or three). It almost immediately sent bitcoin prices skyrocketing 5% to roughly $55,500.
 Bitcoin/USDT prices on Binance, midday Wednesday (TradingView) A buyer with a long-term perspective would be more careful if the goal was to get in at the best possible price to mitigate the risk of that rascal known as slippage.
Slippage is more than what happens when a bartender fills your glass to the brim and you walk it over to your table while George Thorogood is blaring in the background. It's the difference between the execution price and the midpoint between the bid and ask price that got you to take on the trade in the first place. With a big buy, filling every offer eventually pushes the transaction price (and thus the average execution price) higher and higher. But do it in dribs and drabs and you give new sellers time to place orders that can be filled slowly but at a potentially lower price than if it were to be done all at once.
Here's an example, albeit on a bigger scale, of how one firm handled a major buy of bitcoin: Last year, when MicroStrategy purchased $450 million in bitcoin, the company did so in smaller clips from Coinbase over the course of five months, not five minutes. While the price eventually moved up over the course of those several months, each trade didn't cause it to shoot up with the same kind of ferocity seen this past Wednesday, thus keeping CEO Michael Saylor's costs from, well, slipping away from him as he bought.
That wasn't the case this past week with whoever plunked down the equivalent of $1.6 billion for bitcoin. It seems Wednesday's big buyer was in a big hurry to get the trade done. Read the full story here. – Lawrence Lewitinn Copper provides a gateway into the cryptoasset space for institutional investors by offering custody, prime brokerage, and settlements across 250 digital assets and more than 40 exchanges. We are committed to providing flexible solutions that adapt to the changing cryptoasset space, while enabling far greater transparency, control, and security for asset managers. To learn more visit copper.co/interest Chairman Gary Gensler said the U.S. Securities and Exchange Commission (SEC) has no plans to ban crypto, but is looking to regulate exchanges and lending platforms. TAKEAWAY: Gensler refused to single out any specific coins as securities, but claimed to believe that 90% of crypto assets would meet the Howey test. Rep. Anthony Gonzalez (R-Ohio) voiced the concerns of crypto companies, informing Gensler that they have tried to hold a "friendly, open-door conversation" but regulators have not responded in kind.
Meanwhile, Circle disclosed that the SEC had subpoenaed the company and requested "documents and information regarding certain of [its] holdings, customer programs and operations." TAKEAWAY: The SEC appeared to be seeking further clarity regarding the reserves of stablecoin issuers. Stablecoins with "clear and clean reserves" will likely stay out of regulators' crosshairs.
Several crypto billionaires make the Forbes rich list as crypto becomes mainstream. TAKEAWAY: Exchange owners and founders appear to be some of the biggest winners of the 2021 bull run, with Sam Bankman-Fried, Brian Armstrong, Fred Ehrsam and the Winklevoss twins making the list of the top 400 wealthiest people in the world.
NFT trading volume surged to $10.7 billion during Q3, after a strong August and September. TAKEAWAY: NFT valuations and volume remain near their highs after increasing 940% from July to August. Growing interest from companies like Twitter has helped keep speculation high, but Axie Infinity has proven the profitability of non-fungible token-based gaming.
The Federal Deposit Insurance Corporation (FDIC) is studying potential deposit insurance for stablecoins. TAKEAWAY: Regulators have an opportunity to bring further investor protection into cryptocurrency markets by legitimizing some stablecoin providers. A large step in onboarding institutional capital into stablecoins and decentralized finance (DeFi) relies on further investor trust.
Tether has lent $1 billion to the Celsius network and allegedly has billions of dollars in other loans to crypto companies. TAKEAWAY: Tether's reserves could be overly exposed to the crypto industry, putting USDT holders at further risk in case of a black swan event. Bloomberg's report also claimed that Tether has many short-term loans outstanding to large Chinese firms, which has been a concern since the collapse of several Chinese real estate companies. – Teddy Oosterbaan  Podcast episodes worth listening to: |
