Winter Discussion and the Financial Crisis

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2022-08-06 01:35:48

Market situation

Bitcoin yesterday fluctuated mainly around $ 30,000 to $ 31,000. Altcoins also fluctuated slightly in the same trend.

Both stocks and crypto according to the Fear and Greed Index remain at extreme fear levels. According to on-chain data, there was a massive sell-off yesterday and sellers lost more than $3 billion in BTC (as shared by On-chain College).

The majority of leveraged orders liquidated on exchanges are long orders. Over the past day, the volume of leveraged orders liquidated has decreased compared to the previous day.

Despite the market’s fear, the last week showed the return of money to the crypto-currency of 40.3 million USD according to Coinshare’s statistics. Money flow mainly goes into BTC and some altcoins.

The US stock market was a volatile session yesterday. At the close, the Dow Jones Industrial Average fell 0.26%, the S&P 500 gained 0.25% and the Nasdaq gained 0.98%. Stock futures rose slightly.

President Joe Biden’s speech on Tuesday is expected to offer fresh solutions to current economic worries. However, his statements mainly refer to previously existing information and no new measures. He cited the current cause of inflation due to the COVID-19 pandemic and Russia’s war in Ukraine causing worrying economic news. In fact, the inflation that comes from money printing pushed into the market over the years when the epidemic broke out. The US President and the government are also very difficult to come up with the current options.

Crypto winter has arrived?

Yesterday, Benjamin Cowen, Founder & CEO at Into The Cryptoverse shared some views on the market. He said that the longer cycle is dead and the market has entered crypto winter. Currently, inflation is still at a high level and when it declines, he thinks that the crypto and stock markets can grow. Therefore, he thinks that it is necessary to have a part of cash on hand so that when the market goes down, he can seize the opportunity. The current crypto situation, Benjamin Cowen thinks that only Bitcoin should be focused and not interested in altcoins.

The BTC market has been volatile for many years. Therefore, it is necessary to protect capital and manage capital well so that the market at any time can take advantage of opportunities. At the same time, it is necessary to have knowledge and belief in the market when investing.

Many people think that Benjamin Cowen’s opinion that the market has entered crypto winter is not reasonable. Because the price of BTC has decreased by the same time as last July, but he did not think so at the time. Benjamin Cowen assessed the market not only BTC but also the US stock market and inflation as well as the risk of a possible financial crisis. If a crisis occurs, he is confident that the crypto market will go into winter.

The BTC market is very unpredictable because it is influenced by both inflation and stocks. Recently, the correlation between BTC and stocks has been positively correlated at a high of 0.25 (Figure below). Therefore, stock fluctuations also affect BTC and crypto. At this time, investors do not want to take much risk and want to store more cash.

Like the 2008 financial crisis, about a year before that, US stocks had peaked and started going down. It was not until 2018 that the government announced the crisis, so investors were more worried. After that, the market continued to fall. Companies began to lay off employees, unemployment skyrocketed. In early 2009, the stock market began to gradually recover.

It is because of the lessons from previous financial crises that investors are more worried and start preparing for the worst case scenario. They sell assets that cause stocks to go down and accumulate cash. When the market goes down strongly, it is an opportunity for those who have accumulated cash to buy securities at low prices. When the economy gradually recovers, those who accumulate assets at a low level will earn huge profits. Conveniently allocates capital and has kept 30% of his assets in cash. Because the market is volatile and unpredictable, preparation is crucial.

Drama around Luna and UST

Some people see that the BTC sold by the Luna Foundation is done on Gemini via OTC. Before LFG’s BTC was put on the exchange, a larger amount of BTC was withdrawn from the exchange. This is a sign that BTC is bought over the counter and withdrawn from the exchange of institutional investors. In the past few days, BTC has also been bought and withdrawn from the exchange while many people panic to sell.

The price of the UST continued to plummet to $0.549 and has not yet recovered. The LUNA coin has also continued to fall to $2.15, down more than 92% from the peak. LFG CEO Do Kwon said there will be a solution for the UST price but so far has remained silent and has not had any solution.

Many theories have been put forward about the strong selling of UST causing the price to drop and start this unstoppable decline. While UST fell, the organization behind the Tron Network, Tron DAO, acquired 600 million TRX ($45 million) and 500 BTC ($15 million) according to WuBlockchain. In a similar way to Terra’s UST mechanism, Tron Network also launched its USDD stablecoin backed by Bitcoin and TRX cryptocurrencies. So some people think that the beginning of the UST’s fault came from Tron Network’s Justin Sun. However, this is just a hypothesis and has not been tested. Thuan said that the possibility for Justin Sun to risk the reputation of Tron Network to overthrow UST is very low.

Another conspiracy theory comes from Ran Neuner, co-founder and CEO of Onchain Capital, a blockchain investment fund and advisory service, one speculation is that the attack on UST was coordinated by the investment firm big Citadel.

Bitcoin trader Jacob Canfield even expanded on the theory that the Citadel was the “culprit” of the UST case. He said that Citadel company borrowed a large amount of BTC, traded some for UST and started dumping BTC and UST after opening a short position.

Others have drawn parallels between the UST dependency and the Fir Tree Capital Management way. This is a hedge fund that is managing $4 billion and wanted to short tether (USDT) earlier this year.

Theories and some indications have led many to believe that the UST was depreciated on purpose. Before this situation, some information said that Do Kwon is contacting some banks to borrow 2 billion USD to subsidize UST. But the question is, is 2 billion USD enough to support UST at present?

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