The Worst Week In Crypto.
In what was thought to be high hopes and bullish sentiment for builders of @Solana, turned out to be another reminder of how over-leveraged institutional investors playing with your money can destroy a free market sentiment in one week.
Round Two, Three, or Four?
With rumors of FTX — Cryptocurrency Derivatives Exchange being insolvent, this is the not the first time in recent history centralized tokens are falling victim to bad collateralization, over-leveraged positions and institutional behind-the-scenes attacks. While most aim to grow this decentralized oasis for the better, the lack of trust and uncertainty with thought-leaders in the crypto space is a growing issue.
Transparency is key for market trust during despair, especially when the gossip of crypto twitter can sway market emotion strong enough to shift candles if enough engagement blooms.
While absorbing my own reflections on the FTX insolvency, and how CZ released a more transparent reply on the issue earlier on Twitter, there is no short of market manipulation and desperation for facts in crucial times that rely on data. One minute Blockchain news reports that Binance has liquidated their entire holdings of $FTT just hours before plummeting 87% on the week!
Yet while SBF denies insolvency, a transparent tweet from CZ clearly pointed out in a Tweet that they do still “hold a bag” and reminds associates that the bailout of a chief rival exchange is “not a win” for the crypto industry at large.
How is Bitcoin Affected?
Besides the 10% drop overnight? There is an unfortunate paradigm in the blockchain industry right now. While consortium and permissioned chains like Energy Web and the EEA are actively pursuing socio-economic change finding regular success, the public perception of blockchain is so funneled that retail and institutional investors hyper-focus on Bitcoin. So if one of the world’s largest exchanges nears insolvency, it does not reassure retail investors of a brighter future towards their vision of adequate blockchain investments and shakes out possibilities of expansion. Regardless of the inability to run a virtual machine on Bitcoin, the complete decentralization and original Proof Of Work consensus algorithm is second-to-none in comparison to decentralized security of modern protocols.
While the drop in price signals a new low since November of 2020, the unfortunate ripple effect is not over. The current cascade of candles has $BTC/USD sitting ~$16,100 at time of writing: with 30.80 RSI, a death cross, and a devastating ladder of red candles indicating a heavy sell off.
“Never use a token you created as collateral . . Don’t borrow if you run a crypto business. Don’t use capital ‘efficiently’. Have a large reserve,” Zhao
Voyager, Celcius, Luna . . is FTX next?
Comparing the past few erosions of major players in the crypto industry, there are obvious similarities in the games played behind the doors of centralized exchanges. Mis-marked assets being used while over-leveraged put too much pressure on the peg in dire times, and collapsed in a race for liquidity. It is important to note that their was a gossip of conspiracy and intentional failure brought into this. The claims as always get denied regardless of concrete consequences. As to validity and results to these claims, I have yet to deep dive each claim.
A quick recap of denied rumors that provoked catastrophic consequences.
Luna — While Luna Classic may have some fight left via a deceptive 3 month chart, it was a key player in the demise of Celcius and Voyager Digital Holdings. Both networks relied on the Luna Stablecoin ROI for customer incentives and loyalty rewards.
For a split moment there was hope, boasting a heavy acquisition of $1.5 billion in Bitcoin for the reserves of stable-peg.
Yet, in reality the addition of around 71,049.37 BTC added back into the ecosystem did not change the -$493,609,692.2 USD loss of peg in unrealized loss so the race for liquidity continued.
On May 7th, Prior to loss of peg, roughly 11,400 address withdrew approximately 2.2 billion in UST and started the decimation of the peg’s stability. A more in depth breakdown of these crucial few days can be found here by: Evgeny Tarasov.
Celcius — Had problems surface upon the Luna demise as well, while having to accept the demise of horrible wBTC and ETH positions leading to a lockdown of their platform.
Whether it be mis-managed assets in hopes of trend-reversal, or locked wETH for withdrawals, their negligence was noted to have been asked to top up their wBTC collateral “several times” from 22k all the down to 14k to avoid margin calls. On top of that, purchasing 3AC assets did not age well as the 2 founders are still missing from liquidators. While the Tether Foundation denies allegations of holding reserves for Celcius, they have allegations of their own hiding reserves in obscure Bahamas Banks.
Voyager — Just recently after filing for bankruptcy, Voyager was said to be acquired by FTX — Cryptocurrency Derivatives Exchange. Their collapse was also sparked by the collapse of Luna’s stable peg. A breakdown of this can also be noted here by CoinDesk with more correlation to embezzlement by the founders of 3AC after vaporizing roughly 1 trillion dollars.
Playing out in real time, there is a reminder of Mt. Gox. The unrealistic expectation of a healthy outcome remains dim lighted in regards to a comeback from comeback from FTX without a buyout from centralized exchanges. What happens with FTX after all of this remains to be seen.
So What Now?
While the market is a current blood bath, I see indications of hope. Initially bearish on BTC, I have found an appreciation for decentralization in times like this. No one person or centralized entity should ever control that much power over a sector of world-finance, and the realization that institutions are constantly mis-managing money behind the scenes is not very promising for the finance sector. Comments made by CZ and Binance regarding the free market weeding out CEX’s that have faulty practice shows growth and decentralized regulation in the industry. Imagine the contrary alternative to Binance acquiring FTX in full becoming the worlds biggest exchange adds a heavy target. Would that play out in favor of decentralization, or would Binance just hold more bags then everyone else?
Hopes — This leads me to believe the free market will mature in time and start leaning towards becoming more financially independent (self custody wallets). My hopes are to start seeing a shift towards building better interoperable-DeFi, and less centralized collateral. Having active DAO participants become vested in their own ROI is healthy instead of being so reliant on CEX-institutions like Celcius or Voyager to do it for them without transparency.
Sector Growth — Whether it be the Sui Global potential, Google Cloud aiming to host a block producing validator node, or even the completion of ethereum transitioning to proof of stake consensus, there is no shortage of innovation throughout the industry. Everledger and Energy Web are still reshaping industries with permissioned blockchain tech, and Coral labs is working to build a multi-chain wallet for the iPhone of web3.
Code Expansion — My personal conviction lies in the addition of ReactxNFT and how it is being compared to Apple’s Swift and UIKit packages with the xNFT BackPack. This gives me hope in the mid to long year cycles following the emotional rollercoaster of FTX insolvency and current US inflation rates.
