Christine Lagarde has stepped right back in-line after her initial “we are not here to close spreads” statement. Don’t let the nothing done ECB policy meeting fool you. They’ve been dipping deep into their fiscal policy arsenal (LTROs to be extended, TLTRO rates dive further into negative territory, “envelope” of EUR120bn net asset purchases for the year) and wrapped it up with a Draghi-esque “we will do whatever it takes” pledge. The sliver of hope that brewed with Lagarde not being cut from your typical central banker cloth- reversing the printing press and finding a sustainable solution for the over leveraged capital markets- has popped.
Interestingly, Bitcoin has staged a remarkable comeback recouping a third of the recent loss following the Fed’s $1.2tn bazooka (which included a $1,200 per person cash gift). The list of market dislocations is long and distinguished but we’re noticing a significant uptick of tweets pointing out that the Central Banks are quite literally printing your wealth away.
The sheer amount of pledged QE eclipses the total market capitalization of all virtual assets by over tenfold. The Global Financial Crisis 11yrs ago was the genesis of Bitcoin, will this meltdown finally end the funding of American excess by Asian savers and serve as the tipping point for mass crypto adoption?
The alternative narrative would be that we’ve just seen a dead cat bounce from a massive undershoot triggered by a combination of margin calls, stop losses and deleveraging in the system. The aggregate open interest of all bitcoin futures offered has dipped to less than $1.85bn; 67% drop MoM as pretty much all platforms report liquidations with Bitmex taking the jersey as the biggest loser.
The issues with the platform were compounded by a DDoS attack. We couldn’t help but notice a massive PR push by OKeX, thumping their chest, on how they briefly were the largest BTC futures exchange immediately after the rout- which perhaps unsurprisingly, was soon followed with a temporary suspension of its own trading platform.
Separately Huobi reckons they can solve this problem by implementing circuit breakers… this may not be prudent, if only to serve as yet another arb for traders to game. Remember. the recent flash loan debacle, Maker’s near collapse, and the DDoS exacerbated liquidations on Bitmex all (to a certain degree) were caused by a discrepancy in latency of the price feeds vs. the actionable price. Circuit breakers work with equities as there is no perfect substitute to the NASDAQ to trade AMZN US for example, if the exchanges circuit breakers are triggered. There are however, literally hundreds of venues where Huobi users can take their business in a similar scenario.
While plenty of bodies lay on the street, miners are arguably the worst hit as the most leveraged players in the space. It is no secret that many levered up to the brim, doubling down on their perpetually bullish outlook inflated by the upcoming halving. There have been a plethora of credit lines extended as the pledged ASICs, BTC, future mining rewards and in some cases, even their mining plants for fiat to pay off operating expenses. That strategy has seriously backfired. Compounding the issue, plenty of lenders have issued under-collateralized loans. Liquidations followed suit the unmet margin calls and this has translated into a 33% dip in the network hashrate with the next difficulty adjustment implying another 14.3% slide.
MakerDAO avoids shuttering and alongside it, the forced dump of 2.4mn ETH that would happened as supporters pledge to cover the shortfall following a 66% drop in collateral. They have also added USDC as acceptable collateral. This does raise the question what the value proposition of parking one of the most liquid stable coins for one of the least is…
Nevermind HY credit. Gyrations in treasury yields pretty much says it all.
The USD shortage is very real and the additional $540bn credit lines extended to nine central banks around the world will hardly be sufficient. The downgrade of US sovereign rating triggered a massive influx into treasuries during the global financial crisis as investors figured if the US was losing its AAA credit, s**t must really be hitting the fan in the rest of the world. FX has definitely started to show similar price action but dare I say, this time it feels different?
Trump is back to blaming China (just a week ago it was Europe) for COVID-19 as he accuses the Chinese government for feeding misinformation and withholding crucial data but quite frankly the numbers say otherwise. While it is hard to see most other countries implementing China’s draconian measures (or not), they seem to have stopped the rout as Italy tops the ranks for most deaths to date.
Despite all the bashing, the Americans are not exactly showing up their Chinese counterparts and who knows? They might just come cap in hand for help to the likes of Alibaba which has already offered their cloud-based diagnosis tool to Europe’s health systems. Consensus seems to be that Europe and the US are much less prepared for days to come.
Bitcoin baby, it is #TimeToShine.
May the trend be your friend… Happy Trading!