Random Observation/Comment #715: If you’re trading the market on margin/leverage, then you’re straight up gambling. Have a longer time horizon. Be an investor.
Why this List?
“The sky is falling.” Is the “bottom in” or is this a “cycle top”? How do I diversify through a bear market?
I personally don’t like spreading FUD (Fear, Uncertainty, Doubt), but it’s not a bad idea to be paranoid once in a while and consider what the risks could be if enough people listen to it. Whether you’re a lifer that’s discount shopping or just riding the waves, here’s a brain dump of ideas I’ve heard after the recent crypto blood bath.
Note: This is not investment advice and I do have skin in the game.
- Elon’s influence – Is he doing a pump-and-dump or poop-and-scoop? – Elon’s specific influence in the market makes everything seem so much less legitimate. Influencers should not be able to swing markets like this and the SEC is bound to do something about it. Regulations on Influencers themselves will be an interesting thing to settle in the coming months. Youtubers beware.
- Tesla move to stop accepting bitcoin – The bigger picture here is Bitcoin’s overlap of regulations based on ESG concerns. It would have been better for the market if there wasn’t an announcement all together.
- Climate change narrative – Yes, bitcoin does wastes a lot of energy, but so does every company. Just think about any large bank that has expenses for running physical branches or flying their executives globally.
- China’s Influence – This could be part of a bigger plan for creating an anti digital yuan fight – China’s ban on cryptocurrency was back in 2017 and now that the digital yuan is getting closer and closer to production, they may create incentives to utilize their monitored digital currency rather than other tokens. There’s no bigger penalty than getting screwed by the Chinese government through jail-time or social credit dinks. Running a VPN out of China? Years in jail. Holding cryptocurrency and trying to leave the country? I’m sure they’ll find you.
- China shutting down miners – Tighter regulations and actions by China may shut down miners and lead to sales from large whales to close down their businesses.
- China controls bitcoin – Due to the miner centralization in China or run by Chinese companies, a lot of skeptics have looked at how different nations would create regulations for BTC if it becomes a target. From what we’ve seen, there’s a higher buying rate during Asia hours, so I don’t see the sell-off narrative.
- China being a double agent – Forcing a dip can be a part of the broader strategy to get higher distribution in the institutional side. Cryptocurrency has become a weapon for both sides and I’m still not sure which group would lean into it publicly.
- Paper hands from New joiners buying at $50k – Capitulation by these parties means large pullbacks and maybe different people will get burned and stay away from the markets. Losing early adopters was a sign of a turnover from one network to another.
- Rolling impacts with cascading effects – Retail based downward pressure can lead to more liquidations in the short term
- Regulation from US for tighter monitoring on CeFi – This is not great for Coinbase – CeFi seems to be losing steam on ownership to DeFi (although Coinbase just released their own wallet)
- Coinbase IPO calling the top – The cycle was already slowing down and not getting the same growth. I agree that most people are already seeing crypto as a mainstream alternative asset, but the creation of an exchange that tops the chart makes tradfi nervous.
- Regulation from OCC (prev Brian Brooks) being reviewed and possible steps backwards – Any major changes here would be very concerning.
- Over leveraged margin trading leading to liquidations – $8.5b from liquidation in one day is pretty nuts. I think leveraged trading is just bad for the markets when it’s driven by so much greed.
- Institutional momentum falling as a sentiment – I still think there’s interest to grow long positions here as long as they’re not detrimental to existing investments. I feel like the more traditional VCs would stay away from anything crypto-related, while the newer ones may be more forward in strategies that embrace the crypto revolution.
- Crypto use for crime from colonial pipeline systems – Some companies may want to buy bitcoin just to be able to pay for any eventual hacking and bounty. Alternatively, some companies may want to drive a low price before scooping up cheap coins for their future risk diversification.
- Hackers accepting BTC needing to sell off – Unclear if hackers are making deals to wash funds or use them for payment or funding to other initiatives.
- Exchanges not meeting balances – Smaller exchanges could possibly get liquidated if they’re unable to balance their books in a deep bear market drop. Exchanges would hopefully not shut down and prevent funds exiting their wallets. It’s always a possibility and people that get worried start exiting funds and putting money under their mattresses.
- Exchanges getting more strict balance sheet regulations – It may be a harder and harder business to run a centralized exchange based on regulations around balance sheet collateralization
- New regulations moving forward using the single day drop as an example could be a long term recurring narrative from TradFi on the trustworthiness of the technology.
- The 9 BTC ETFs may face some headwinds, which may slow the momentum.
- Scaring away institutional investors from adding to their balance sheet – Hopefully the Tesla diamond hands are copied all around.
- Negative reaction from institutions – Different large institutions may make take advantage of the FUD and provide counter to be “greener” in their perception.
- Exits by crypto companies – Some companies hiring large teams may need to exit in order to cover expenses. This happened back in 2017.
- Silk road narrative updated for laundering money – Not just early days of black market sales of drugs, but more regional drug cartels may be adopting the moving of wealth through sharing secret phrases. The movement of the money could be added to a separate wallet and then you handover the wallet instead of sending TXs.
- Security concerns on centralized companies – This leads to more diversification in storage to remove custody of keys by others. It’s always been a tradeoff of security and liquidity.
- DeFi Financial primitives vulnerability – Any new primitives entering the network as a smart contract could introduce new business logic and tokens that can break existing relationships. Flash loans classically showed a lot of concern over illiquid networks.
- Tether disclosure sharing reserves about their A2+ commercial paper – USDT backing divulging their holdings is a step in the right direction. I think the unveiling of a fraudulent stablecoin could also be detrimental to this industry.
- Stablecoins breaking pegs – The algorithmic pressure for maintaining an overcollateralized CDP does lead to a lot of confusion through these events. I think further research and simulations has made this more resilient and come up with new strategies.
- Market manipulation – General sentiment that a lot of people are making a lot of money on the volatility and couldn’t care less about the developers and builders in this space. This is why we can’t have nice things. An originally brilliant vision of financial inclusion is contributing more to an equity divide.
- Crypto rug pulls – Since most of this is gambling, people who have tried to form communities from their genuinely good ideas can easily be wiped out with innocent investors burned.
Net-net: DeFi didn’t blow up, which was surprisingly good to see. Regardless of all the FUD, I am still worried about regulation impact. No change in my positions. New narratives will come into play in the coming weeks depending on recovery, so I’m closely monitoring institutional reactions.
~See Lemons on a Rollercoaster