The market context continues to be a mixed bag, bordering on mediocre. The crypto credit crunch is real as large funds and firms are unable to meet their margin calls.
The latest iteration of this series of catastrophic events is CoinFLEX stopping withdrawals due to a big user’s account going into negative equity. Rumours are swirling about that it might be Roger Ver’s account. Meanwhile, Voyager defaulted on $650 million against 3AC.
There’s a scene in the Hobbit when one of the dwarves of Erebor asks Gandalf whether he could “do something about this deluge?”- to which the Wizard responds: “it is raining master dwarf, and it will continue to rain until the rain is done”.
The scene nicely sums up liquidity conditions in crypto right now, in part because it is simply impossible to know the real financial health of big players out there until the storm has passed. The supply of Bitcoin, stablecoins and other crypto collateral on distressed funds is unknown also due to the fact that most of these transfers occur OTC.
However, the good news is that we’ve already seen massive draw-downs and insolvencies. Additionally, the renewed effort from players like FTX, Bnktothefuture, and now even JPM to buy up cheap assets is certainly not a bad indication at these depressed levels.
The question investors ought to be asking themselves is simple: “do I want to be a buyer when large crypto funds are unwilling forced sellers?”
The answer is very straight forward in my view.