The Last Look…
Posted by Colin Lambert. Last updated: November 14, 2022
Is the real danger to cryptocurrency values not the trust (or lack of) factor involved in another firm blowing up, but what seems to be a lack of volatility?
Reports state that cryptocurrencies were sold off last week in anticipation of further grief for the industry following the blow up of the latest shiny toy and indeed Bitcoin dropped about 20%, which is fair for bad news in a limited market. The thing is, though, since then it has reverted to recent type and done very little – hence the question at the top.
In some ways, this could be seen as a sign of maturity in the crypto space, cryptocurrencies behaved like currency markets in pricing in the latest crisis pretty quickly, but as always – and as the last week has shown – nothing is that simple in crypto.
There has been plenty written elsewhere on the FTX episode, all I would observe is that many of us have enough experience of stroppy teenagers and (over) confident 20-somethings to know that while they are indeed the future, that future shouldn’t be at the helm of a multi-billion dollar (apparently) organisation until they have a bit more experience.
Aside from that, what is interesting me in this episode is the price action, or relative lack of it, prior to and after, last week’s carnage.
Put simply, Bitcoin has stopped moving. In 2022 retail has largely been carried out on a stretcher and is, wisely, reluctant to move back in, and for all the noise about institutional money, it’s hard to find serious money buying in. If it were, after all, the price would be going higher.
What I keep hearing from people in the industry is that the institutions are “interested” and “looking at it”, but that is very different from actually buying it – although no doubt the crypto industry, thanks to its one unarguable talent, will continue to (over) promote this and only see upside.
I wondered aloud last week, when talking to a friend in the FX market, why the price wasn’t moving and they had a theory, and not a bad one at that. My friend reckons the only people left holding Bitcoin in any size are the original “whales”, and they aren’t going to sell, but perhaps more pertinently, they have bought enough.
Events like last week trigger volume spikes, which is how it should be, but it’s going to be hard to build a business predicated upon retail and (perhaps) institutional money, if the only time it moves is when the latest crisis hits. The problem facing the crypto industry at the moment is that the arguments for its strength given over the five-year (and more) bull run have been largely discredited, the latest being the libertarian ideal that it is a better place to invest because it doesn’t have government oversight or regulation.
There is a major trust issue undermining values, which is ironic given how the crypto world is meant to be trustless.
Just about the only argument left is the technology may drive the future, and is the tech even linked to the currencies anymore? Surely if someone wants to deploy a blockchain product the provider will accept dollars?
It seems as though the major cryptos are in a situation whereby they do nothing until news moves them. Fair enough, but the problem is it is hard to see where positive news is going to come from. Yes, we are hearing all sorts of statements from firms with a slightly different structure or viewpoint, but until 10 days ago, who thought FTX was lying to the world? There is a major trust issue undermining values, which is ironic given how the crypto world is meant to be trustless.
Some firms will, no doubt, come out of this period stronger – again I am reminded of the dot-com bubble burst and how the FANGs emerged – but what is different here is that those firms at the start of the century were offering real technology-based solutions that spoke to the masses. The crypto exchanges that are left behind may be stronger, but if people aren’t trading their product where do they go?
At the moment they seem to be living off one strategy, but something else the 20-somethings like to forget is that arbitrage works for a while, and then it doesn’t.