CryptoWallCity vs MEXC Exchange

Cryptocurrencies are trying the failures of traditional finance at super speed, but it will be fine

The most interesting thing here is to see what happens to bitcoin and other cryptocurrencies during these difficult times.

The last time I wrote about a stablecoin, it failed spectacularly. So when a colleague of mine asked me to write about MakerDAO’s proposal to invest in the US Treasury to back its collateralized stablecoin DAI, I was reminded of the power I wield.

By the way, I’m totally joking. I don’t value myself that much. But while we’re talking about spectacular failure, we should be talking about spectacular failure.

Just two weeks ago, this newsletter suggested that opaque, intertwined platforms with excessive leverage were a danger to crypto investors. It was the shadow of the Three Arrows Capital hedge fund default, but now Celsius and Voyager (two retail-focused profit-generating platforms) have come together to roll out restructuring plans.

That’s what you do when the going gets tough. Voyager has even declared Chapter 11 bankruptcy – “a good kind of bankruptcy”, for the record (if there is such a thing) – proving that cryptocurrencies are difficult to deal with the mistakes of traditional finance in Singapore. super speed. Furthermore, is also likely to lose $270 million from lending to Three Arrows.

Oh, and there’s some other not-so-great crypto stuff happening right now that we’re going to get into, but it’s all going to be (somehow) going to be okay.

That (and possibly more…) below.

The economy is not very good

The yield curve inverted this week (see chart below). An inverted yield curve is often considered a warning indicator for a recession. So, on the surface, that’s not great.

Unknown 10-Year Treasury Yield Exceeds 2-Year Treasury Yield (TradingView)
Unknown 10-Year Treasury Yield Exceeds 2-Year Treasury Yield (TradingView)

OK, but what does that mean? In plain English, the federal government of the United States sells bonds, or Treasuries, to investors like you to finance all the things they do. Those Treasuries, in turn, will pay you an interest or yield over a period of time. At the end of that period, the original amount is returned to the investor. If Treasuries sound like loans, that’s because they are.

The higher the amount investors expect to earn from these Treasuries, the longer the loan. That makes sense. Your money is locked up longer, so in return for that risk you get more profit. So then if you plot the length of the loan on the x-axis against the yield, you get a logarithmic growth curve.

Normal yield curve (Julie Bang / Investopedia)
Normal yield curve (Julie Bang / Investopedia)

Except when the yield curve inverted – that’s what happened. Currently, 10-year Treasury yields are lower than 2-year Treasury yields.

Theoretically, this means that investors expect long-term interest rates to fall. In practice, this means that banks – which depend on lending at rates in excess of the “risk-free rate” (usually the yield on 10-year Treasury notes) to make money – will lend less. And this will lead to a slowdown in economic activity.

That’s life in a debt-based monetary system.

Also, the 75 basis point (bps) increase in interest rates in July is essentially a foregone conclusion at this point. (For more on what that means, see the more detailed section I wrote two months ago.) According to the minutes of the June meeting of the Federal Open Market Committee (FOMC), almost all FOMC members were in favor of a 75 bps increase. Federal Reserve Chairman Jerome Powell told us that a 75 bps increase was an “unusual increase.”

Two months in a row seems pretty normal, but that’s just me. All eyes on July 27.

Miners are in trouble

We have covered how miners can soon invest by selling some of the bitcoins on their balance sheet to fund operations when they are struggling, based on year-over-year price performance. 2022 was mentioned in last week’s newsletter. And just like that, one of the biggest miners, Core Scientific (CORZ), announced that they sold over 7,000 BTC in June. CORZ hasn’t been doing well in 2022, so it’s no surprise they’ve had to dip their hands into the coffers a bit.

UnknownCORZ stock price year to date (TradingView)
UnknownCORZ stock price year to date (TradingView)

All told, although miner capitulation is seen as the start of a “zero death spiral” (since miners are supposed to be the last line of defense), that doesn’t happen in practice. .

Core Scientific CEO Mike Levitt assured investors that the company was focused on executing on its plans and that the purchase was just an exercise in maintaining a balance sheet. To its credit, CORZ doesn’t need to disclose that they’ve sold anything because their earnings call isn’t until August.
If anything, we should welcome transparency.

Cryptocurrency Lenders Don’t Have a Good Time

Ultimately, leverage continues to harm everyone. The collapse of Luna led to the insolvency of Three Arrows Capital and now we are facing a crypto lending crisis. BlockFi received a structured bailout from FTX with what appears to be $215 million in proceeds, Celsius halted operations and then announced some restructuring plans, and Voyager did. similar but different by declaring bankruptcy.

On top of that, on Friday, could lose $270 million from lending to Three Arrows Capital. It’s hard to ride a sled out there.

The news is still unfolding for all of these lenders. All in all, this is all “not good”, but it feels like the worst is behind us. FTX and its selfless CEO Sam Bankman-Fried are emerging as a crypto savior as his or his company’s name pops up all the way around the companies. is failing on Three Arrows’ default embers.

Interesting practical lesson

So, all in all, all of this – yield curves inverted, higher interest rates, miner speculation, and multiple crypto lender bankruptcies – are not good. The most interesting thing here is to see what happens to bitcoin and crypto during these difficult times. Not only is life difficult in the crypto world, but macro signs are signaling a recession.

And although it was born out of a recession, bitcoin has never experienced a recession. It, at least, is going to be interesting. Thankfully (or unfortunately) things are happening faster than I used to (I used to work in finance/tradfi).

It’s interesting to see what bitcoin does in tough macro times – that’s the root of all this.

Out of all of this, this is last week’s bitcoin.

Bitcoin price index
Bitcoin price index