The Tides are Turning

Chaos is Crypto; but why?

I have to be honest with you – a large portion of this segment was written prior to this absolutely train-wreck of a week in the crypto space. While my conclusions feel largely the same, my sense of why has eroded substantially and we are all still polishing the crystal ball to get a clearer view. One thing is certain – we all have more questions than answers right now. Stay with me here, it’s a little bit of a journey.

For those who haven’t been following along at home, on Monday the US Securities and Exchange Commission filed a massive lawsuit against crypto-juggernaut Binance with 13 separate charges – including operating an unregistered exchange as well as wash trading. Not only did the suit name Binance and its US counterpart – but it also directly named its CEO/founder/100% owner/benevolent dictator Changpeng Zhao (who casually goes by CZ).

No more than a day later, another lawsuit was filed against arguably the #2 player in the market – Coinbase.

Despite the commission cracking down on crypto players over the past year, this seems somehow…bigger. It is totally understandable that the government is trying to get a handle on all of this, but these large actions in rapid-succession start to beg some questions. Questions like:

• Has the intensive scrutiny placed on Sam Bankman-Fried and FTX/Alameda led to revelations that implicate these other exchanges?

• Did SBF cut a secret deal to get back to playing League of Legends?

• Are we closer to the CDBC (The Fed’s digital currency) than we think or are they just trying to “traditionalize” the digital markets?

• Who is next?

We probably won’t have to wait long to find out and I am pretty excited to see the kind of dirt CZ dredges up to the surface.

Fun fact: CZ helped bankroll Elon Musk’s purchase of Twitter.

At this point, it would be very easy to declare that “cryptocurrency is dead”, like many have already. That’s not exactly a huge stretch either – on the other side of all of this chaos is the weight of the millennia-old traditional financial industry, which have been outspoken against alternative currencies from the onset.

At the WEF, while taking a short break from telling everyone to eat bugs, JP Morgan’s Jamie Dimon recently quipped:

While it’s not hard to guess why the ex-Federal Reserve board member would have such an axe to grind with non-fiat currency, it’s admirable that he hasn’t let his complete lack of understanding of how any of it works shake his resolve.

That said, there is a point buried deep in the heart of his strawman, just a little over a foot below where The Great and Powerful Oz shoved that fresh brain.

The majority will still rule when it comes to the future of Bitcoin (and any other on-chain currency) and that’s a future that’s yet to be written. Fear is powerful and fear is certainly the tone in the United states…at least for now.

But here is where it really gets weird.

Amidst all of the outcries, legal battles, and FUD, several multi-trillion dollar institutions have continued to launch their own initiatives in support of cryptocurrency. These initiatives include funds, custody groups, and despite the industry-shaking downfall of FTX – even exchanges.

So this brings us to the penultimate question: If massive institutions that are deeply connected to the policymakers – institutions like Vanguard, BlackRock, and BNY Mellon – are still throwing down bets on cryptocurrency, then what is actually happening right now? 

My opinion is that crypto as we knew it is absolutely dying. Unregulated exchanges that foment trading conditions, pump and dump schemes, and freshly minted billionaires with harems of nerds are on the way out.

Replacing them will be a fresh face on the same old institutions, waving the banner of a new tradfi crypto.

In the end, the question we all should be asking who is more powerful? Gary Gensler and Jerome Powell or Vanguard and BlackRock?

What do you think?

Getting the dirt on Wash Trading

Let’s talk about wash trading for a minute.

Wash trading is basically when a party and counterparty to a trade are essentially one and the same – or at least in cahoots…do people still say cahoots? Anyhow, this serves many purposes including price-fixing, book manipulation, and artificially inflating the volume of trading at an exchange.

When we were first starting out at Rainwell, we took a lot of things at face value – including the reported exchange volumes. After intensive data gathering and evaluation, it became obvious that the reported exchange volumes (at some exchanges) were largely fiction.

For illustration – here’s a real life situation that we recorded on a no-name exchange that had impressive volumes:

1. The tops of the book were largely static in price.

2. We placed an order at the top of the book and instantly another order would appear above it, pushing ours out of immediate striking distance.

3. Within moments, the new order on the top of the book gets executed at precisely its full volume.

4. We remove our order from the book and the books go back to the previous levels.

The previous scenario could be repeated over and over again without fail.

With over 600 exchanges in play, faking volume has been important for small exchanges to gain traction and without oversight, they are free to basically behave as they please. Drawing the interest of automated traders and institutions ultimately leads to more real trades and more fees – which is a key to survival.

Links and whatnot

• A list of games you can play in ChatGPT

• Scientists Hacked Human Cells to Make Insulin, And It Reversed Diabetes in Mice

• Wicked Game – Tenacious D (Mildly NSFW)

• AI Explained on YouTube – in-depth AI discussion

Useless Poll of the Week

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