Our readers will have to patiently stand by for the December Cryptocurrency Update until next week. Wednesday, the 15th of December (the last day of data collection) closes late, delaying our publication. So, today I want to focus on some of the material that likely would have gone into that update.
Let’s start with 2017, when I first said that cryptoassets were the opportunity of a lifetime.
Here are some examples of “Big Money” quotes at that time.
Avoid BTC like the plague. There is nothing to support BTC except the hope that you will sell it to someone for more money than you paid for it. —John Bogle, father of Vanguard Funds
BTC is rat poison squared. —Warren Buffet, Chairman Berkshire Hathaway
Does it support people who want to use currencies for anonymous uses for the wrong purposes? Absolutely. —James Gorman CEO Morgan Stanley
An Index in Money Laundering. —Blackrock CEO, Larry Fisk
My own view on BTC, for example, is I really don’t know, but it’s really not something, you know, individually that’s important to me. —David Solomon, CEO Goldman Sachs
It’s a fraud and worse than tulip bulbs. —Jamie Dillan, JP Morgan
Something that goes up 700% in a year is by definition speculative. —James Gorman, CEO of Morgan Stanley
Big Money’s problem with cryptoassets in late 2017 was that they had no plan in place for how to capitalize on it. It was a lot different than collateralized debt obligations (CDOs), where they securitized debt obligations, including very dangerous subprime loans, added leverage, and then sold them to the public. Now these were rat poison squared and the big bank actions almost brought down the entire economy.
What happened next? 2018 saw a severe 85% drawdown in cryptoassets. My guess is that Big Money manipulations had a lot to do with it, and that drawdown gave them time to develop a plan. In the meantime, they had politicians and the general public believing that something like BTC was only for crooks. However, BTC is a totally traceable cryptocurrency and once you have one address, a good forensic scientist can trace all of that person’s addresses. Because of this bad press, BTC miners, who were producing 1800 BTC per day, could not get major financing for their mining activities and had to cash in much of their newly acquired assets to fund their operations.
Now, fast forward to 2020.
- BTC had a halving and only 900 BTC could be produced per day.
- Grayscale had launched a trust for accredited investors and they were buying up all the newly mined BTC and more. They were subsequently approved by the SEC as a security and then accredited investors had a way to get out of their investment.
- By September 2020, PayPal and Square were buying up about 110% of the newly mined BTC each day.
- And suddenly Big Money had a new appreciation of cryptoassets.
Let’s look at a few of the big investment bank’s activities.
- Bakkt was developed by Intercontinental Exchange Holdings (owner of the NYSE) and by Microsoft and Starbucks to facilitate crypto trading by big institutions.
- Goldman Sachs is offering both futures and options trading to its customers for Ether and Bitcoin. Remember that several years ago BTC was dangerous but now the big banks are offering derivatives trading on BTC.
- JP Morgan has given their customers access to a half dozen crypto funds and has created their own digital currency JPM Coin
- Bank of America (Merrill Lynch) has now opened a digital research division in their operations.
- Morgan Stanley became the first big bank to offer BTC funds to their wealth management customers.
However, the biggest change is that the big banks are now willing to lend money to crypto miners so that they can keep most of their funds and not have to sell them to fund mining operations. Morgan Stanley and Fidelity, as an example, funded $425 million to Cipher Mining so they could continue operations without selling off their newly mined BTC.
Okay. Now ask, “What happens when crypto miners don’t have to sell their 900 BTC that are mined each day?” Over the last six months, BTC miners have dropped the amount of BTC they are selling to exchanges by 70%. They are now selling about 14.9% of what they produce and hoarding the other 85.1%.
Crypto Credit Cards
There is one more new factor that is using up crypto. I found three different credit cards that earn crypto rewards. Notice that these are all sponsored by crypto exchanges and not by the big banks.
- BlockFi Credit card gives you 3.5% crypto rewards on everything you purchase in the first three months, then 1.5% per transaction, and 2% if you spend $50,000 in a year.
- Gemini gives you 3% on dining, 2% on groceries, and 1% on other purchases.
- Venmo gives you 3% back on your top spending category, 2% on the next best category, and 1% on everything else. And, you can convert this money automatically into either BTC, BCH, LTC, or ETH.
Why would you want cash rewards when you can get BTC (or other crypto rewards)? And what is the impact of this if it becomes more widespread? The average person earns about $550 in credit card rewards each year. What if most people switch to cards giving crypto rewards?
Market Manipulation
So why isn’t all this leading to an absolute boom in crypto? There is a huge demand for BTC and other cryptoassets that is using up all the new supply and much more.
The answer, in my opinion, is market manipulation.
Cryptoassets are largely unregulated. And, even if they became regulated in the US, they would remain unregulated in most of the world.
Many crypto exchanges offer margin buying at 100 to 1 leverage. That means a 1% move in your favor doubles your money but a 1% move against you will wipe you out.
One big investor or one institutional investor with say 10,000 BTC can start selling and create a boomerang effect, triggering many stops, and wiping out all the leveraged speculators in one shot.
And, for some strange reason, most crypto prices are HIGHLY correlated to BTC. So, if you can move the price of BTC down, you can move all cryptoasset prices down. With 10,000 BTC, you can perform a wonderous manipulation.
For example, I’ve noticed that many such moves (up to 20-25% down in about an hour or two) occur Saturday night when most people in the US are asleep.
Here are some examples for BTC just in 2021.
Saturday, May 19th, on a volume of 126 billion BTC (huge), the price went down from $42,845 to $30,682. That was a 28% drop that took place in a few hours.
Sunday, April 18th, on a volume of 97 billion BTC, the price went from $60,702 to $52,829. Again, late at night for US citizens. That was a 13% drop in a few hours.
Saturday, December 4th, on a volume of $61 billion BTC, the price went from $53,728 to $42,874. That was a drop of 20.2% a few hours later at night.
I got these prices from CoinMarketCap which is owned by Binance and reflects their prices. Frequently, there is a spike that goes much lower on some other exchanges.
- What happens after such a price manipulation?
- Fundamental analysis starts to give you many reasons why the new price is correct or BTC had the crash.
- Technical analysis does a new analysis of the market and usually assumes it’s now bearish without any mention of market manipulation.
- And the whole crypto market collapses because for some strange reason every coin acts in concert with BTC.
- All of it is made up and whoever manipulated the market is happy and can start accumulating at a much lower price unless they have a reason to drop the market even more.
Conclusions:
- Cryptoassets are still the investment of a lifetime. This is Van’s opinion, but if you don’t like BTC you miss out on all the profits.
- Big Money has moved from totally against it to supporting it now that they know how to make profits on it.
- Big Money doesn’t care if it’s safe or not. In fact, they are focusing on derivatives of cryptoassets rather than the assets themselves which are much more dangerous.
- Market manipulation is unbelievable in the crypto world. And big institutions could be behind it.
We are developing a foundation class on the games Big Money plays and this article is a good preview.
Next Monday, December 20th, I will be giving a free webinar (no ads or promotions) which will most likely become part of this of course. In Monday’s webinar, I’ll be talking about Big Money games, the power games of politicians, how Big Money really controls that, and what you can do about it.
Let’s end with this quote—a great example of what goes on for the masters of Big Money.
These truths are well known among our principal men, who are now engaged in forming an imperialism to govern the world. By dividing the voter through the political party system, we can get them to expend their energies fighting for questions of no importance. It is thus, by discrete action, we can secure for ourselves that which has been so well planned and so successfully accomplished.[1]
Until next week,
This is Van Tharp
[1] Speech addressing the US Bankers Association in 1924. Reprinted in the Idaho Leader, USA, on Aug 26, 1924.